Is inflation control target within reach?

(VOV) – The latest statistics show that Vietnam is on track to keep inflation under control. However, experts warn there is no room for complacency as market prices fluctuate in the second half of the year.

The General Statistics Office (GSO) announced on June 24 that the national consumer price index (CPI) rose slightly by 0.05% in June, bringing its six-month index to 2.4%, which is much lower than half of the 6.81% target set for 2013 by the National Assembly.

Nguyen Duc Thang, a GSO official, told VOV that the price index truly reflects the market law of supply and demand that the CPI normally increases considerably in the first two months of the year due to the traditional lunar New Year festival, but remains stable or even goes down in the following months.

The low six-month CPI shows that ministries, sectors and localities have effectively implemented a Prime Minister Decree on inflation control, one of the government’s top priorities in its macroeconomic performance.

It also shows that the consumer purchasing power is much lower than last year, rising just 4.9% compared to 9.8% of the first half of 2013.

According to Thang, Vietnam is likely to control this year’s inflation if it maintains the steady or even negative price index growth in six consecutive months.

It has achieved such growth for the past four months and it is difficult to forecast what will happen in the coming months, the senior statistical official said.

Other experts warned that lax coordination and management between economic sectors and businesses will fuel inflation up when the market roadmap for several key commodities and services is put in place in the second half of the year.

It’s worth remembering that the recent decision to hike retail petrol prices was not included in June’s CPI calculations. This means it will affect the CPI for July which also sees a minimum pay rise for employees.

A loose monetary policy as suggested by a number of economists could bring in undesired results. The fact is that a tight monetary policy has helped the government get inflation under control over the past months.

Experts said the State budget deficit for 2013, which accounts for 4.8 percent of GDP, is comparatively high and the ratio will be much higher if it bears the burden of government bond sales.

In addition, large amounts of capital are needed to restructure the national economy, make strategic breakthroughs (in institutions, human resources, and infrastructure), and increase foreign currency reserves.

Other factors that could affect CPI growth include a possible increase in the prices of input materials for production (electricity, petrol and fertilisers), capital disbursement for key projects, animal epidemics, and adverse weather conditions.

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* 7% inflation expected for 2013

A rising trade deficit is another imminent factor behind high inflation. Statistics show that as of June 15, the trade deficit ran at more than US$1 billion. If import surplus keeps rising and there remain wide differences in domestic and global gold prices, the exchange rate between the US dollar and the Vietnam Dong is likely to rise and have a double impact on inflation.

GSO official Thang suggested that the government further cut lending interest rates to keep pace with inflation trends and macroeconomic performance, and ease difficulties for businesses to shore up production.

The government should flexibly adjust the prices of input materials for production such as electricity, coal, fertilizers and healthcare and education services to avoid market shocks as in the past, he said.