Inflation, CPI Forecast to Jump High in 2005

The Vietnamese inflation rate and the price consumption index (CPI) are estimated to grow 8.5 per cent and 8.8 per cent, respectively in 2005, according to expert forecasts released at a recent meeting in Hanoi. This year’s CPI increase has resulted from negative impacts from the widespread outbreak of avian flu, natural calamities and soaring oil prices. The Ministry of Trade projected that CPI will increase by 0.4-0.5 per cent in the last two months of this year, raising the annual CPI growth to 8.8 per cent. 

 

Explaining the reason why CPIs in regional countries are not as high as in Vietnam although also affected by the soaring oil prices, Ms Nguyen Thi Thu, a member of the Monetary Policy Department of the State Bank of Vietnam, regional countries such as China and Thailand are witnessing lower economic growth rates. In 2003 and 2004, China’s economic growth rates hit 9.5 per cent but this year its economic growth is expected to be slower at 9.4 per cent. Thailand saw an annual economic growth rate of 6.9 per cent in 2003, 3 per cent in 2004 and a lower in 2005. In the meantime, Vietnam’s economic growth rate is on the continual rise with 7.3 per cent in 2003, 7.7 per cent in 2004 and an estimated8.4 per cent in 2005. The increasing economic growth rate is the main factor leading to the high CPI in Vietnam. Furthermore, from the beginning of this year, Thailand increased its gasoline retail prices twicw by 20 per cent in total and China raised its prices only slightly while Vietnam elevated its price three times with a total increase by 30 per cent. This is also a factor for the higher CPI.

 

Vietnam is implementing solutions to balance economic growth targets and inflation. If Vietnam prioritises the economic growth, it must accept a certain level of CPI and the country can control inflation if it accepts lower economic growth. This year, Vietnam’s economic growth is estimated to be 8.4 per cent butinflation is not higher than last year’s 9.5 per cent. This success is a result of Vietnam’s effective control policies. For example, Vietnam has prudent monetary policies that can restrict bank interest rate increase, which lead to inflation. The government also demanded that influential corporations don’t raise prices in order to facilitate domestic circulation and reduced taxes on various commodities in a bid to accelerate economic growth and control inflation. In 2006, Vietnam will introduce similar solutions to speed up economic growth and control inflation. Of course, keeping inflation at the desired rate for the economy is Vietnam’s main target.

 

According to economists, this year’s inflation has mainly resulted from the “supplies” of the economy. The “supplies” are soaring prices of food, oil and other commodities. The Government has increased gasoline prices three times this year. According to Ms Nguyen Thi Thu, the global oil price has tended to decline . If the Government decides to reduce the gasoline retail prices, production input costs will be lowered for various economic sectors, which will drive down inflation. The government’s decision will convince people that the price will not rise further.