Statistics show that the consumer price index (CPI) in April 2006 increased just by 0.2 per cent against March 2006, bringing the CPI increase in the first four months of 2006 to three per cent. The figures are lower than those of the same period last years, which stood at 0.6 and 4.3 per cent, respectively. Also, CPI of food and foodstuff saw a low increase, 0.2 per cent against 0.5 per cent in April, and 4.2 per cent against 6.6 per cent for the first four months. This is proof of the lower inflation rate in the first four months of 2006 than that of the same period last year.
This may be good news for low income earners. However, future developments of the market may be contrary.
Increased supply of goods and services
There are many reasons for the result, including an increased supply of goods and services, in particular, industrial and construction goods and services, against the same period last year. The relationship between production and consumption, between goods and money, has improved, thus helping reduce price increase pressure. Farmers in the south begin to harvest the winter-spring crop, while northern provinces see a good winter-spring crop. The farming of cows and pigs, as well as seafood has witnessed a high growth rate. Poultry husbandry has resumed since bird flu was controlled.
A import tax cut for goods imported, especially electronic goods, from Southeast Asian countries within Vietnam’s commitment for integration, has led to an increase in volume of goods and a fall in prices. Even for automobiles used cars were not yet allowed to be imported, prices of automobiles manufactured and assembled in Vietnam dropped by between US$3,000 and 11,000 per unit.
Much money in investment channels
The circulation volume of cash is an important factor for inflation. There are two things that should be noted about the factor. Firstly, the increase in capital mobilisation continued to be higher than the increase loan provision. Banks have increased their mobilisation interests since late last year and continue to increase them this year. Some commercial banks have provided attractive offers to their customers with prizes, bonus and ladder interest payment. When more money is attracted to banks than it is in circulation, the price increase pressure will certainly reduce. Secondly, money has been concentrated on fast-growth investment channels, gold and securities. Gold prices in the world market have increased sharply and prices in the domestic market are even higher, sometimes reaching VND 14 million per tael. Since gold prices have skyrocketed, many people have rushed to buy gold, mainly gold ingots. This proves speculation.
The VNIndex on April 21, 2006, reached 591.39 points, or an increase of 286.11 points against January 3, 2006, or 93.7 per cent in total and 25.3 per cent per month. Such a high increase cannot be seen in other investment channels. This represents a warning of hidden high risks for the gold and securities market.
Oil and petrol price increase
The State’s prevention in prices of goods in which the State has power to increase prices also contributes to inflation. So far, the State has gathered inputs and comments about future increase in price of electricity. Prices of oil in the world market exceeded US$75 a barrel and the State cut the import tax rate to 0 per cent and asked oil and petrol traders not to increase prices, tightening the management of smuggling oil and petrol via border.
However, the State suddenly decided to increase prices of oil and petrol from 8pm, April 27, 2006. Electricity, oil and petrol are inputs of most enterprises and produce direct impacts on the expenditure of most consumers. Also, with the State’s decision to increase prices of oil and petrol, there will certainly be a massive price increase of goods and services, whose consequences will certainly be borne by consumers.
In sum, a lower inflation rate in the first four months than the same period last year is a good news for consumers, especially those with low incomes. However, with recent developments in the markets after an increase of prices of oil and petrol and gold, CPI in the coming months is predicted to be much higher than last year. This implies a concern more than a joy for consumers!
(Source: Saigon Marketing Weekly)
Vietnamese
