Over the past two years, the world market has been caught up in a swirling vortex of fluctuation in the prices of four major groups of commodities - steel, oil and petrochemical oil, gold and foreign exchange rates.

The current price of steel stands at between US$350-400/tonne after surpassing the US$400-450 mark. Crude oil also established new pricing levels of between US$60-65 per barrel after rocketing to nearly US$70 per barrel. Similarly, the price of gold recently fluctuated and hit a record price of US$510/ounce. The exchange rate war between major currencies of powerful economies continued to take place. Since the middle of 2004, the US has changed the value of its currency 12 times, prompting its basic interest rates to increase from one to four percent. The move caused the Japanese Yen to devalue by 16 percent and the euro to rise by 12 percent compared to late last year.

Vietnam is deeply integrating into the world economy, particularly through import-export activities. Therefore, it is easily affected by any fluctuations on the world market. However, the Vietnamese market has specific characteristics. It is not strong enough to control the balance in a small area and is inconsistent in different regions of the country. It still lacks a defined orientation and responds slowly to sudden changes.

The fact that the Vietnamese market is not often affected by price fluctuations on the world market, brings out both advantages and disadvantages. On the one hand, it not only prevents the local market from adapting to sudden changes but also give businesses enough time to consider before deciding. Meanwhile, producers of commodities such as sugar, cement, steel and domestic-assembled cars rarely respond to global fluctuations. Instead, similar imports, including smuggled ones tend to penetrate and flood the domestic market. This is a profound lesson for domestic producers who follow the production model of "living from hand to mouth".

The flooding of imported goods consequently devastates Vietnam’s domestic market of more than 80 million people and hinder the efforts of businesses to secure the market shares.

The fact is that there was no price "fever" in the domestic market in 2005. This has been attributed to the effort by the Government, ministries, and relevant agencies to control market prices. Adjustments to oil prices were considered a big success as petrol is a strategic commodity and faces the highest risk of fluctuations. Every year, the State imports nearly VND80,000 billion worth of oil – the second largest import product in terms of value - and also spends tens of thousands of billions subsidising importing this product. The soaring price of oil affected major commodities and the national economy in general, and regulating this product helped adjust the prices of other items.

On the other hand, the soaring price of oil often drives the consumer price index up. In fact in the second and third quarters of this year, the domestic market saw few fluctuations although the Government adjusted the price of oil up three times to double the price of 2004.

However, there are two factors affecting market prices which should be taken into account. First, the price of food and foodstuffs for daily life such as rice, meat, fish and vegetables has increased regularly by two, three or even four times since the beginning of this year. Second, the price of commodities such as steel, cement and many other construction materials has remained unchanged and has even fallen during the peak season. Meanwhile, the supply of construction materials such as enameled tiles, sanitary wares and steel outstripped demand at an alarming rate. This is another market lesson for producers.

However, fluctuations in the world market this year did not put our mind at ease for the following reasons.

First, the consumer price index (CPI) rose sharply in the first and second quarters remained unchanged in the third and fourth quarters, but rose again to nine percent in November and 9.6 percent in December. By the end of November this year, CPI was 7.6 percent and if it increases in December by 0.6 percent, the CPI for the whole year will stand at 8.6 percent - 1.4 percent lower than last year. Businesses will make use of this advantage to increase the price of their products, particularly businesses that have had no chance to do so since the beginning of this year.

Second, this year the price of oil and gold on the world market continued to fluctuate and currently stands at a high level. In the first week of December, the price of gold jumped to US$510/ounce. This winter is forecast to be colder than the previous years, and Christmas and New Year are approaching fast. These are reasons for consumers to think that the prices of these two commodities are not yet to drop.

For Vietnamese, the upcoming Lunar New Year Festival falls in a month’s time (January 2006), therefore the purchasing power among the population will grow sharply. Meanwhile, businesses try to fulfil and surpass the yearly plan to enjoy 13th-month salaries and bonuses. However, we should not rule out the possibility of a surge in the price of essential commodities due to "secret" agreements among businesses.

We are entering the second week of the last month of the year. Among other economic targets, the target of controlling CPI has seen great success. However, the Government and market management agencies should take more drastic measures to control CPI in the weeks prior to the Traditional Lunar New Year Festival.