Inflation restraint and economic growth - dual objectives

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As part of his answer to a press question on January’s consumer price index (CPI), Minister, Chairman of the Office of Government, Vu Duc Dam said: “Inflation control and macroeconomic stability remain the top priority and require closer coordination between ministries and localities.”

According to the General Statistics Office, this month’s CPI increased aggregately 1.25pct against last December, which is approximately an average rate in comparison with January’s CPI during 2003-2012.

Meanwhile, the January 2013 index rose 7.07pct over the same period of last year, which is in fact among the lowest increase rate in the last six years, with the figure for January 2011 and 2012 being 12.17pct and 7.27pct, all against the same period of the previous year.

However, the increase of over 1pct in CPI is considered a “warning signal” of challenges in achieving the inflation target of 6-6.5pct for 2013 set by the Government, requiring the authority “to be very cautious”.

Minister Vu Duc Dam attributed the CPI rise to the increase of healthcare cost, supply shortage and rising demand on the threshold of the Lunar New Year.

Accordingly, due to the recent prolonged severe cold weather that damaged farmers’ harvests, prices of commodities rose by approximately 1.3pct on average.

Remarkably, during the first month of the year, healthcare service prices were increased in 10 provinces, rising the index for medicine and health care by 7.4pct, of which health care went up sharply by 9.5pct, all against December of last year.

Medical costs are also expected to rise in other provinces later in the year, after the price adjustments were postponed in accordance with the Prime Minister’s direction in late 2012, which indicates even higher CPI in the near future.

Acknowledging the inflation control difficulties, the Minister stressed on the operation and cooperation of ministries and localities in implementing the Resolutions No. 01 and 02/NQ-CP, set out by the Government since the beginning of the year.

Minister Vu Duc Dam reclaimed that the government is consistent with pulling down last year’s inflation of 6.8pct and boosting growth to over 2012’s rate of 5.5pct.

“In operating [the economy], it is necessary to tiptoe between curbing inflation and keeping growth. Credit tightening may constrain growth, create surplus labor leading to instability; but if [we] chase growth target and excessively extend credit, inflation may return.” said the government spokesman.