Inflation has become an obsession for Vietnamese people. However, slowing inflation since the start of the year fanned concerns over continued economic difficulties ahead.
According to the General Statistics Office (GSO), consumer price index (CPI) in April 2013 rose just 0.02 per cent from the previous month. Before that, Hanoi and Ho Chi Minh City reported that their CPI slumped 0.15 per cent and 0.33 per cent in April, respectively.
Less for food, more for health
Food prices did not surge while construction material prices dipped. Eat-out and catering services slid 0.01 per cent while food prices shed 0.86 per cent and foodstuffs plunged 1.26 per cent. These commodities have a heavy weight on the CPI basket.
Vietnam’s another success in the early months of this year is slowing inflation. CPI climbed 2.41 per cent in the first four months, a far distance from the target CPI growth of 6 - 6.5 per cent this year. The rate was also lower than consumer price growth of 6.83 per cent in the first four months of 2012.
Housing and construction material prices slumped 0.44 per cent in the month because the freezing real estate market wrecked on the construction industry. State budget for construction works also went slow.
However, medicine and healthcare services soared 3.62 per cent from the previous month, in which medical services surged 4.51 per cent. At the back of gasoline price hike on March 28, the Ministry of Industry and Trade anticipated that the move would raise CPI by 0.127 per cent while indirect effects could not assessed immediately. Some taxi companies and transport companies also announced to increase fares by 7 - 8 per cent. The follow-up reduction in gasoline prices on March 9 helped ease impacts of the previous fuel price hike.
The rise in hospital fees also gave rise to higher CPI. In April, hospital fees were raised in only three provinces of Nam Dinh, Binh Thuan and Tay Ninh, and Hai Phong City. Besides, the weight of healthcare services in CPI basket is quite light. Hence, the strong rise in this group had little push effect on CPI.
Hanoi, the capital of Vietnam, is planning to submit a hospital fee increase plan to the upcoming meeting of the Municipal People’s Council, slated in early July. Accordingly, proposed new fee rates will equal nearly 75 per cent of the ceiling rate imposed by the Ministry of Health through 2014. In 2015, the city will raise the fee to the ceiling rate.
Indeed, although the big rise of essential goods and services like medicines and healthcare services had little impact on CPI, it largely affected people.
Economic outlook remains gloomy
No matter how inflation is analysed, including month on month CPI, year on year CPI, core CPI, ex-food CPI, recent low-price pressures do not simply reflect seasonal movements.
This shows that the purchasing power and aggregate demand of the economy remain low. This actually affects production and business momentums.
Dr Ngo Tri Long said “We should be worried rather than be happy about slowing CPI.” The decline in consumer prices is resulted from lowered prices of goods and services. This is good for consumers indeed.
Low CPI growth portrays a bleak economic picture, which is stained by increased inventories and reduced incomes of workers, which undermine purchasing power and consumer confidence.
A report by JP Morgan Chase said "Inflation can be a symptom of more serious economic problems which are affecting Vietnam and resulting from unsolved weaknesses of the banking system and debt reduction of State-owned enterprises.
The real estate market remains dismal and awaits a bailout. The slump of the stock market has forced a number of companies to be delisted or put under warning status or added to watchlist. The gold market is quite volatile. As production stagnates, corporate bankruptcies may increase. At a recent conference hosted by the Ministry of Finance, Dr Ngo Tri Long warned that if we did not have actually effective policies, the economy is unlikely to recover soon while stagnation prospect is on the horizon.
Many international institutions forecast that interest rates will be slashed to support production. JP Morgan Chase projected that the State Bank of Vietnam (SBV) will cut interest rates by 1 per cent this year. However, ANZ thought the central bank is unlikely to lower the rates this year. Nevertheless, a rate reduction is possible given worsening economic data and slowing inflation.
However, while lending rates lag behind deposit rates. Lending rates slumped sharply in the past one year, from 17-21 per cent to 11-14 per cent). But, according to surveys by VCCI, debt repayment capacity of enterprises hardly improves. The debt repayment capacity fell from 5 times in 2009-2011 to 3.5 times in the period from 2012 to present.
For the time being, the economy is awaiting solutions to capital clog, based on banking system restructuring and bad debt clearance. These are primarily hurdles to credit growth. Enterprises are also awaiting financial expense reduction policies like tax cut, fee cut, land rent, and administrative costs.,etc.
Le Minh
Vietnamese
