Customers to Benefit from Consumption Market in 2009

 

Under the pressure of CPI and inflation, Vietnamese consumers are experiencing hard times. Households are opting for frugal spending and tighter budgets because of the economic downturn. There are two quite evident segments in the domestic market in the year of 2008: first half of the year and second half of the year. The former half saw prices accelerate. Necessary products like petrol, steel, food and foodstuffs, etc. all experienced their sky-rocketing prices, up by 30 – 60 percent on average. However, CPI showed signs of cooling down in the latter half of the year. Petrol witnessed a dramatic decline in its price and price of a series of other commodities continued on the same trend. CPI in December 2008 saw a sharp decrease. According to the GSO, CPI in December 2008 of Hanoi declined to 1.3 percent and of Ho Chi Minh City, by 0.42 percent against that of the previous month. The Lunar New Year normally experiences an increase in prices. 

 

In Hanoi, the commodities with the strongest price reduction among ten commodity groups which are used in calculating CPI are transportation and post & telecommunications (a decrease of 6.49 percent against November). The retail price of petrol and diesel within the country continues to fall. Until now, this commodity has witnessed several reductions, casting an influence on many other commodity groups. The groups of food and beverage service sector experienced a modest reduction of 0.07 percent. However, CPI of Hanoi for the whole year of 2008 increased by 22.14 percent compared to that of December 2007.

 

In Ho Chi Minh City, the down trend of CPI remains unchanged at a reduction of 0.42 percent. The group of transportation, post and telecommunications has felt a stronger decrease in price than that in Hanoi: 6.96 percent. Meanwhile, the price of medicine and healthcare services fell by 0.94 percent. Food and beverage services felt a slight increase of 0.35 percent against the previous month.

 

Not only influencing the wallets of consumers, the price factor is becoming a psychological obstacle to the consumption habit of many. Selecting domestic goods trend has become a priority of a majority of people. In fact, this is the factor which exerts a long-term impact on domestic consumption demand. A customer at Fivimart supermarket in Hanoi says that she gives more thought to spending. She decides to choose domestic goods over imports because they are suitable for her budget while ensuring quality.

 

Currently, domestic products in the supermarket system of Hanoi have risen to 75 – 77 percent compared to last year’s 70 percent. This year, domestic confectionery products are forecast to “come to the throne” since consumers are still worried about melamine-affected products and a price increase as well.

 

Fashion items show the most evident signs for the rising trend of domestic products. “Made in Vietnam” retail stores have expanded their locations, recently. Stores selling clothing items are mushrooming in Hanoi while maintaining a large number of regular customers. Contrary to this lively sight, fashion brand names in large commerce centres (Parkson, Vincom, etc.) like Gabana, Mango, and Adidas, etc. are being shunned by customers despite big year-end discounts.

 

According to judgment of experts, Vietnam’s economy will still encounter many struggles in 2009. It is estimated that inflation will fall to one number by the end of 2009. However, the economic recession is clearly reflected in economic sectors, exerting an influence on the vast majority of people’s life. In order to prevent deflation, the government will put forward an economic stimulus package of US$1 billion from the state budget plus another US$5 billion from other sources (according to the Ministry of Planning and Investment). One of the government’s priorities is to spur investment and social consumption. 10,000 apartments are planned to be built for renting, with an estimated capital amount of VND2,500 billion. This plan aims at stimulating demand for investment, consumption and meeting demand for accommodation. As such, real estates experts forecast that the price of real estate in 2009 will fall and gradually approach its true value, especially in large cities like Hanoi and Ho Chi Minh City.

 

Furthermore, the Prime Minister has agreed to increase the price of electricity in 2009. The Ministry of Industry and Trade proposes an increase of 20 percent for electricity in daily life. Price of electricity in Vietnam is currently lower than that of regional nations. The increase aims at encouraging investors to take part in projects.

 

The price of domestic petrol and oil will also slightly increase. The project management board of Dung Quat Oil Refinery Factory says that 25 February is sure to be the date when Vietnam starts producing commercial petrol and oil. Active supply of this extremely important energy will lessen pressure of being dependent on global oil and improve effectiveness of the government’s economic management policies in a more favourable direction.

From 1 January 2009, the retail market of Vietnam will be completely opened. Vietnamese consumers will be entitled to selection of products of good quality and real brand names. They no longer have to go through intermediaries when foreign investors are permitted to use 100 percent of their fund to establish supermarkets or trade centres in Vietnam market. Opportunities to shop at a cheap price will bring practical benefits to consumers. Food and foodstuff commodities will see their price slightly go up in 2009. The consumption trend for health will also catch on.

 

Luxury items like cars, beer and wine will experience a price hike when the Law of Luxury Tax is applied starting 1 April 2009. During 2008, despite the inflation rate of over 20 percent, automobile makers maintained a steady price. Therefore, the general price will increase in 2009 to make up for the higher cost of imported accessories, tariffs and other related costs. Purchasing power of automobile will definitely drop in 2009. Also from 1 January 2009, the registration fee rate for car in Hanoi will be 12 percent instead of the usual 10 percent rate. Ho Chi Minh City also plans to apply the registration fee rate of 15 percent in 2009.

 

Three years after Vietnam joined WTO, Vietnam’s economy outlook is becoming clearer. Economic experts state that a market with fair competition will bring more benefits to consumers.