What’s behind the CPI decrease?

The consumer price index (CPI) in HCM City in July fell by 0.09 percent from the previous month. The slowdown in CPI increases has been praised as a good step in the fight against inflation. However, according to Saigon Tiep Thi, this would be a problem, if the prices decrease because of the low consumption or the lack of competitiveness of Vietnamese goods.

This is for the first time so far this year that the CPI in HCM City CPI has fallen. According to the city’s statistics office, restaurant services saw the lowest increase in the last two months with 0.05 percent. Meanwhile, the foods prices decreased by 0.06 percent.

Foodstuff consumption down

Since mid-July 2010, the blue ear epidemic began spreading to the southern provinces. Combined with prolonged hot weather, consumption of meat and the price of essential foods has dropped.

According to the Livestock Breeding Department, the blue ear epidemic made Hanoi market pork sales in May and June decrease by 35-40 percent over previous months. Epidemic information has also affected consumption in the south, with sales decreasing by 10-15 percent. Pork prices have plummeted because breeders have been trying to bargain away their herds, fearing the epidemic. In the first quarter of the year, pork prices hovered around 36-37,000 dong per kilogram of live weight, fell to 32,000 dong in late June and has declined further to stand at 28-31,000 dong per kilo.

Food prices, especially rice, have also remained low since April. According to Saigon Tiep Thi, on July 20, rice in HCM City was 6500-16,000 dong per kilo. The sharp fall of world market demand has been cited as the main reason behind low domestic prices.

Consumer goods selling slowly

Luong Van Vinh, owner of My Hao Cosmetics Company, reported that, since late April 2010, sales have not increased in comparison with the same period of 2009, even though prices are the same.

Vinh added that this is really a surprise because he expected sales to rise in the hot weather. In general, the rainy season is the best sales season of the year. Many kinds of products that he offers have high inventory index, according to the statistics office.

Other products with high inventory indices include clothes (except leather clothes) – at 109.4 percent, footwear – 107.3 percent, fiber — 104.9 percent. Diep Thanh Kiet, Deputy Chair of HCM City Garments, Textiles, Embroidery and Knitting Association and Deputy Chair of the Leather and Footwear Association (Lefaso) noted that one factor making inventory volumes expand is that Vietnam products must compete fiercely with imports from China and Thailand.

According to retailers that sell information technology products, sales have slumped by 30-40 percent since April. According to Thuong, a senior executive of The Gioi Di Dong, a big mobile phone retailer, since May, sales have dropped by 30 percent.

T, a director of a company specializing in importing laptops and digital devices, admitted that with big stocks, she must hold sale programs every week, offering big discounts of up to 50 percent.

The CPI decrease of 0.09 percent in July means that prices did not increase, while demand still increased. This is not a sign of deflation.

The fact that the CPI is nearly the same in July should be seen as a positive event that which shows the market is stable. This means that the Government has done well in controlling prices. I think that it is feasible for Vietnam to curb the inflation rate in 2010.

Head of the HCM City Economics Institute Tran Du Lich

Tags: Vietnam CPI, Vietnam economic, Vietnam economy

Posted by VBN on Jul 22 2010. Filed under Economy News. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry