CPI falls on lower transport costs

Vietnam's consumer price index (CPI) fell in November 2014 by 0.27% month-on-month largely because of decreasing transport costs, the General Statistics Office (GSO) revealed on November 24.

This is the second time the country's CPI has decreased since last March, when prices fell by 0.44% from February.

The CPI increased in November by 2.6% year-on-year, which was lower than the 3.23% year-on-year increase last October but still the lowest CPI in the past 10 years, the GSO noted.

Do Thi Ngoc, deputy head of the GSO's CPI Department, attributed the decline to the 20% fall in the retail prices of petrol, leading to a sharp reduction in transport costs of up to 2.75% month-on-month, thereby contributing to a 0.24% CPI decrease.

"Transport costs will continue to fall in the future," Ngoc said, adding that gas prices likewise posted a remarkable decrease. In addition, the prices of building materials and housing fell by 0.74%.

Notably, the food and restaurant services groups, which account for the biggest portion of the CPI basket of goods and services, decreased by 0.03% while the telecommunications group decreased by 0.01%.

Seven of 11 goods in the basket saw a slight increase of 0.03 to 0.34 per cent. In particular, shoes, garments and textiles increased by 0.34 per cent because of a rise in demand for clothing during the cold season.

Entertainment and tourism increased by 0.1% while education increased by 0.03% and health care services, by 0.04%.

Ngoc observed that the CPI this month reached its lowest level since 2009. This is abnormal because the index usually increases during the year-end months, she added.

The November CPI in the country's two big cities fell by 0.30% and 0.36%. Other localities such as Danang, Haiphong and Can Tho experienced the same decrease. In November, gold averaged VND3.5 million per tael and the US dollar, VND21,350.

Low 2014 CPI

Vietnamese Prime Minister Nguyen Tan Dung also said last week that Vietnam's inflation this year would likely be below 3%, its lowest level in decades.

Economist Ngo Tri Long agreed, saying the low CPI would have both positive and negative effects on the economy.

Long revealed that at the end of the third quarter, the country's GDP growth rate reached 5.62%, so the growth rate for the entire year was expected to reach 5.8% because of an expected increase in foreign direct investments and overseas Vietnamese remittances in the year-end months.

A CPI at 4.5% to 5% will have a positive impact while that at three per cent will result in higher inventory, low purchasing power, decreasing investment and slow consumption, he added.

However, Long suggested that the Government refrain from increasing prices now, as high inventory, lower demand and increasing bad debts were causing the drop in the inflation rate.

If prices are increased, purchasing power will fail to recover and consequently, production will fail to improve, he warned.