In its proposal to be submitted to the government soon, the MoF has asked for the price of crucial commodities to prevent a sharp rise by the end of the year.

According to the MoF, 10 categories of crucial commodities, including electricity, water, coal, cement, steel and airfares, should be stablised due to their significant influence on the CPI.

In early April, the Prime Minister ordered a halt to increased commodity prices until the end of June, a move aimed at cooling inflation which had topped 11.6 percent in the first four months of this year.

A MoF source said when considering the current global economic slump, a halt to crucial commodity prices increases was necessary.

It said that it was a major fear in Vietnam that prices would go up significantly across the board in June, squeezing the poorest people the hardest.

However, senior economist Le Dang Doanh maintained that the government should reduce its administrative interventions in the price of commodities.

He said it would cause problems in the future if the government continued to use funds to support enterprises that had been banned from raising prices in line with global fluctuations.

Jonathan Pincus, chief economist at the United Nations Development Programme, said that commodity prices were not the main cause of inflation in Vietnam, despite all the rhetoric.

“The main causes are credit growth and a fiscal deficit. If Vietnam was able to reduce the rate of credit growth and narrow the government’s fiscal deficit, then the rate of inflation would decrease. But, it must do both of these things at the same time,” said Pincus.

As for petrol, the MoF’s proposal asked the government to continue compensating oil and gas enterprises to sell at below market prices. In situations where global oil price rise sharply, the MoF proposal calls for an adjustment to domestic market prices.

Last week the global price of crude oil hit US$135 per barrel.

“I don’t think the government can continue to subsidise fuel prices. We all need to learn how to use fuel more efficiently. A higher price will encourage us to do that,” said Pincus.

“In my opinion, this policy amounts to attempting to treat the symptoms of inflation without curing the disease. Fuel subsidises are a form of government spending. The more the government spends on fuel subsidies, the larger the fiscal deficit,” Pincus added.

He stressed that Vietnam’s economy was overheating because of over investment, particularly in the public sector.

“Restoring discipline to the public investment programme is the key to lower inflation,” he said.