Falling rate of inflation – just in short run

If the consumer price index (CPI) is kept at around 5 percent by the end of 2012, it will be the second time in six years Vietnam sees inflation going down in one year but up in two years.

  • Deflation could be negative
  • Mounting pressure on inflation control in 2013
  • The CPI in June dropped by 0.26 compared to a month earlier, a first sign of deflation in 40 months. But the level was 2.52 percent higher than in December last year.

    A welcome sign

    Judging from the current situation, it is very likely that the 2012 inflation rate will be maintained at around 5 percent, much lower than the set target of 8-9 percent, says former Minister of Planning and Investment Tran Xuan Gia.

    However, there’s still concern about whether inflation will be contained in a sustainable manner or it will raise its ugly head again, sooner or later.

    According to recent statistics, Gia says, the CPI rose 12.63 percent in 2007 and 19.89 percent in 2008 before dropping to 6.53 percent in 2009. Then, the rate of inflation increased again by 11.75 percent in 2010 and 18.13 percent in 2011, and would likely drop to 5 percent in 2012.

    In his calculation, the average rate of inflation from 2007-2012 is still high at 12 percent.

    In the short run, this is OK. But, to get to the root of the problem, Gia suggests, there must be a thorough analysis of all policies which have been implemented since 2007.

    The falling rate of inflation in the first six months of 2012 is just a result of applying band-aid measures in line with the government’s resolutions 11 and 13 on strengthening the management of State budget, pubic investment, monetary and credit control and market prices stabilisation.

    Gia cites other factors behind the falling rate of inflation such as the low consumer purchasing power, high inventory level, and credit crunch, which, he says, will continue affecting the domestic market operations in the remaining months of 2012.

    Not enough for sustainable growth

    Former Minister Gia says he is still worried about the possibility of bringing down the rate of inflation in the long run.

    To this end, Gia proposes keeping the momentum towards sustainable growth with a focus on stabilizing the macroeconomic situation and keeping the rate of inflation at a lower level than economic growth to fulfill social welfare targets.