‘Fishing in troubled waters’

Le Duc Thuy, chairman of the national Financial Supervision Committee, confirms that the rising consumer price index (CPI) in the past two months is nothing new and just equivalent to the average increase between 2003-2010, except for inflation in 2008 and deflation in 2009.

There is no worry about inflation as the CPI in the first months of the year normally makes up 40-50 percent of the whole year’s figure, he says.

Mr Thuy acknowledges that the government’s recent decisions to raise petrol, electricity (CREAT LINKS>>>>>>>) and coal prices, and adjust the foreign exchange rate will certainly drive up the CPI in March and the following months.

However, he insists that the government’s decisions do not mean it wants to raise the prices of all commodities.

“A rise in coal prices will only affect the electricity sector, not other consumers. Incorrect public views will eventually create the prerequisites for opportunists to fish in troubled waters,” says the senior analyst.

Steel producers say steel prices will probably increase by 5-10 percent as electricity prices make up 10 percent of steel production costs.

“This explanation is unjustifiable, because when electricity prices increase by 6.8 percent on average, steel production costs are unlikely to go up by 1 percent,” Mr Thuy argues.

Together with electricity, retail gas prices were also raised by VND4,000/container as of March 1. This is the second time gas prices have been adjusted since early this year. Gas businesses attribute the rise to an increase in the price of imported gas and the foreign exchange rate.

Paradoxically, while the oil and gas sector meets 60 percent of domestic demand (600,000 tonnes a year), retail prices are still calculated according to the global prices.

Milk companies also give reasons for a jump in milk prices, blaming high foreign exchange rates and an increase in imported materials and sugar prices.

However, analysts say there is no reason to have raised milk prices by between 7-14 percent over the past few months while exchange rates have spiked by only 3 percent at a maximum. Though powdered milk prices have surged to US$3,400-3,500/tonne, they are still US$1,600/tonnes less than the 2007 peak.

State management agencies insist that decisions to hike the prices of several essential commodities such as electricity and petrol are necessary steps according to the market law.

At a meeting in Hanoi on March 3, market watchdog experts concluded the petrol businesses have made no mistakes concerning their recent price adjustments. 

Nguyen Thanh Huong, deputy head of the Price Management Department under the Ministry of Finance (MoF), confirms petrol businesses have stuck to a MoF decree that each increase should not exceed 7 percent.

In the face of public worries about inflation, MoF Deputy Minister Tran Van Hieu reconfirms that the Government will not float market prices. Although a market mechanism has been applied, commodity prices are still under the State’s strict management.

He says his ministry will continue to keep a close watch on the market and take appropriate measures in case of strong fluctuations.

Meanwhile, the Ministry of Industry and Trade says it will immediately examine the observation of regulations on price listing at markets as well as the market law of supply and demand.

Mr Thuy forecasts that the CPI for March is likely to hover around 0.5-1 percent  - a higher level than March of the previous years. But there is good news that food prices have begun to fall after galloping upwards during the Lunar New Year festival.