Inflation could increase over 2 per cent in May

The Consumer Price Index was likely to continue to rise over the next few months but at a slower rate, said General Statistics Office deputy general director Tran Thi Hang yesterday.

He was speaking in an online discussion entitled “Inflation 2011: Review and Solutions” run by the online newspaper VnEconomy.

Hang forecast the CPI in May could increase 2-2.5 per cent over last month and added if prices of fuel and important raw materials did not fluctuate greatly, the inflation rate for the whole year could be kept unchanged at 11.75 per cent as the last year’s level.

The inflation rate in the first four months of this year reached 9.64 per cent, surpassing the Government’s annual target of 7 per cent.

Hang said political instability in North Africa and the Middle East and natural disasters in Japan and elsewhere in the world had pushed up prices of fuel and commodity, including steel and other raw materials, and therefore weighed on production input costs.

The price index of raw materials for production (input) in the first quarter increased 15.2 per cent over the same period last year, of which the price index of agricultural, forestry and fisheries reported the highest increase of 21 per cent, she said.

Responding to questions about reasons for the high inflation in the first quarter, Huynh The Du, a lecturer of the Fulbright Economics Teaching programme, attributed it to excessive public expenditure and biased State capital allocation in enterprises, as well as the Government pursuing a stable exchange rate policy in the context of high inflation.

“Expenditure in the public sector has stood at 35-40 per cent of the gross domestic product in recent years, where State investment made up 20 per cent of the GDP. This is too high a level,” Du said.

Meanwhile, State-owned enterprises and some large private companies had often gained favour in capital allocation but many had used State capital for “speculative” investment (real estate, securities) rather than investing in their core production to generate added-value to the economy.

“In addition, maintaining a stable exchange rate policy in the context of high inflation has reduced competitiveness of Vietnamese enterprises . . . which would make Vietnamese goods, both for domestic consumption and export, more expensive than imported goods,” he said.

Viet Nam’s inflation rate had often been higher than other countries in the region in recent years, Du said, noting that the country’s inflation had always exceeded the national GDP growth: in particular inflation in 2008 (23 per cent) was three times higher than the yearly GDP growth while inflation last year (11.75 per cent) had doubled the 2010 GDP growth rate.

“So it is difficult to be convinced that inflation in Viet Nam was due to objective factors as most countries have also experienced similar impacts, only Viet Nam saw a higher inflation rate,” Du said.

Nguyen Dinh Cung, deputy head of the Central Institute for Economic Management, agreed the country’s growth to date was mainly based on expanding investment but investment was generally ineffective, particularly State investment, and this was a fundamental cause of high inflation in the long term.

“To expand investment, we must extend fiscal and monetary policy. Thus, credit and money growth helped contribute to increasing fiscal, payment and trade deficits,” Cung said.

As for high inflation in the last two months, Cung said increased petrol and electricity prices and a higher exchange rate had direct negative impacts on production costs and pushed up most prices in the market. — VNS

Tags: Vietnam 2011 inflation, Vietnam economic, Vietnam economy, Vietnam inflation