Purchasing Power Needs Booster

November CPI was surprisingly low, creeping just 0.34 percent over October, although this month started the biggest purchasing season of the year. According to the General Statistics Office of Vietnam (GSO), CPI in November rose 5.5 percent this year and 5.78 percent year on year, much lower than the growth of 6.65 percent in the same month of 2012.

 

The November CPI growth was the lowest November growth in five years, according to the Domestic Market Management Team.

 

This low growth was attributed to a mid-November slight petroleum price cut plus another fuel price slash in October, thus resulting in a 0.02 percent decline in transportation sector. Telecom prices slumped 0.86 percent in the month. Other commodities saw slight price increases, ranging from 0.07 percent to 0.62 percent. The biggest climb was seen in food and service prices because rainstorms and floods caused enormous damage to agricultural production.

 

CPI rose 5.5 percent from January to November, representing the lowest 11-month growth in 10 years. CPI growth in 2013 was forecast to be lower than 2012, which stood at 6.81 percent. If so, this is the second consecutive year CPI went up less than 7 percent.

 

Prices tend to be heated when the Solar New Year and Lunar New Year 2014 are coming near. However, there will be no a sudden surge in consumer prices as in previous years partially because of tightened spending of consumers amid employment uncertainty and little-improved incomes. Weak consumer demand is hampering economic recovery.

 

Notably, according to analysts, low CPI does not necessarily reflect well-controlled inflation. Low CPI growth is also driven by global market prices. The world economy has not regained growth momentums in the past two years and global prices dropped 3 percent in 2012, particularly a 10 percent slump in food prices. World commodity prices declined 2 percent in the first 10 months of 2013. Our economy still depends heavily on imports and if international commodity prices climb, the country's consumer prices will look up as a result and vice versa. The decline of world commodity prices has eased down the price of domestic consumer goods. The matter that needs to be considered is while world consumer prices plunge, the country’s CPI still gained approximately 6.8 percent, not a low growth rate at all. The world economy continues to signal a solid recovery and commodity prices may soon rise and this will, without doubt, affect domestic prices. According to this view, Vietnam’s economy may still face the return of high inflation if it lacks appropriate policies that both support economic recovery and tame high inflation.

 

It is quite clear that monetary policy has been eased. The State Bank of Vietnam (SBV) has loosened credit growth targets for commercial banks and met with commercial banks to discuss measures to promote credit growth and curb bad debts. On the market, commercial lenders are offering attractive consumer loan policies with simplified one-step procedures. Credit growth has shown signs of rebound in the past two months.

 

The real estate stimulus package worth VND30 trillion (US$1.4 billion) provides the opportunity for low-income people to buy houses and support property companies to reduce inventories which will also entail supports for other industries. To date, the boost package is still at a standstill. Only some 1 percent of the package value has been disbursed but it has a relatively good psychological impact on the market. Many homebuyers are seeking a pie from this preferential credit package. If the disbursement of this package is accelerated, it will generate strong ripple effect on the market.

 

Dr. Vo Tri Thanh, deputy director of the Central Institute for Economic Management (CIEM), said we have applied a lot of support channels, both direct and indirect, like partial interest subsidy and tax break. To stimulate consumer demand, the Government also decided to exempt, reduce taxes and reschedule payment of some kinds of taxes like personal income tax and corporate income tax to create momentum for economic stability. He added that a stimulus package is just like an additive drug, not a fundamental solution to help the economy out of crisis.

 

The business community is experiencing a crisis period. This reality is still relatively clear on the stock market. Used to be highly profiled, many affiliated companies of renowned Song Da Holdings, Vinaconex, PetroVietnam or shipping firms are facing coercive delisting because of operating losses. Big business groups like Kinh Bac and Thai Hoa Vietnam are struggling for existence. Steel, cement and sugar industries are full of difficulties. Like biggies, small businesses are shrinking to survive. They lack confidence when they deploy new business plans.

 

The government also adopted measures to economic downturn since 2008 and deployed a stimulus package worth VND143 trillion, according to the Ministry of Planning and Investment. These supports came in the form of tax exemptions and reductions and partial interest subsidies to selective borrowers. However, these policies are said to affect only profitable businesses which can pay taxes while companies in real trouble are inaccessible to support policies.