CPI wriggles free of control measures

Consumers continue to suffer from rising living costs

As such, the CPI in the first 10 months of this year was up 8.12 per cent, a level much higher than expected. Yiping Huang, a lead economist at Citigroup Asia Pacific, said that inflation would continue to be a problem in Vietnam, raising questions about the outlook for the country’s monetary policies and implications for the economy and asset prices.
“Inflation is a new risk that emerged recently and deserves to be closely watched,” said Huang, adding that the actual inflation rate already exceeded the central bank’s expectations, causing a tightening in monetary policy.
In a meeting held recently, Deputy Prime Minister Nguyen Sinh Hung said the CPI should increase at around 0.3 per cent, 0.3 per cent and 0.2 per cent in October, November and December, respectively.
The government expected the CPI would peak at around 8.2 per cent this year, an acceptable level still lower than the GDP growth rate estimated at over 8.5 per cent. To reach its target, the Ministry of Finance (MoF) has continued to enact import duty reductions on a series of materials and products in a move to cool down rising prices, the second time duties have been slashed since early August.
“The government should monitor the price regime very carefully as Vietnam will become directly exposed to volatility in global commodity prices,” said Ayumi Konishi, country director of ADB Vietnam.
In the government’s latest decision, import duties on new cars and milk have reduced by 13 per cent and 50 per cent, down to 60 per cent and between 3 and 7 per cent on average, respectively. In a related move, the MoF refused to adjust the retail price of petrol on the domestic market despite the fact that petrol went up to $90 per barrel on the international market.
Vu Huy Hoang, Minister of Industry and Trade, said the price of petrol on the domestic market would remain unchanged despite rising internationally. He added that to ensure the CPI do not exceed its target, the government would compensate petrol import firms if they became bogged down with cumulative losses.
However, head of the Macro-Economic Department under the Central Institute of Economic Management Nguyen Dinh Cung said that there were a number of problems related to curbing the rising CPI. “The attraction of local currency via tools like T-bills and bonds haven’t reached the expected target,” he said, adding that the tax reduction would not directly cause the reduction of commodity prices on the market. Tran Dinh Thien, deputy head of the Economics Institute, said that there were few immediate impacts as a result of the duty reduction.
“Any tax reduction only shows results in three to six months, therefore one should not expect that the tax reduction would bring immediate price decreases,” said Thien.
He added that the market would only see price decreases in a short time if enterprises had healthy competition. However, in Vietnam enterprises are unlikely to lower prices even when the government cuts taxes.
“In the short term, there will be no major impact on the economy if the CPI exceeds the GDP growth rate, but in the long term, the competitiveness of enterprises and the entire economy could be affected,” said Cung.