The skyrocketing consumer price index (CPI) in the past eight months posed a high risk of inflation to the national economy. Looking back on the CPI in recent years, it stood at 9.5 percent in 2004, fell to 8.4 percent in 2005 and 6.6 percent in 2006, but rose to the 2005 figure in the past eight months of this year. Specialists expressed concern that the CPI would achieve a record high of two digits by the end of the year.
The Government has applied administrative measures to curb price hikes including slashing import tariffs, petrol prices and handing down fines on wholesales businesses that corner the market. These efforts have paid off, causing prices of several commodities to come to a halt or plummet slightly.
Economically, price hikes, in other words, inflation is the manifestation of the economy in which administrative measures only bring about temporary and unsteady results. Though Vietnam earned US$31 billion from exports in the past eight months, it suffered a record import surplus of up to US$6.4 billion. Specialists wondered why such a steadily growing economy is facing a risk of inflation.
To explain this phenomenon, we first look at the import surplus index. Once import surplus rises, our currency will be devalued because imports rely on global market prices. In recent times, global prices have risen sharply, surpassing the State-controlled floating limit of the domestic currency by one percent. In addition, Vietnam’s WTO membership means domestic prices are no longer set by our businesses, but conform to global fluctuations. This is a thorny issue for new WTO members including Vietnam, which have to play by global rules.
Under the Doi Moi (Renewal) process, the Vietnamese economy has made a big leap, but revealed shortcomings to be overcome. Without appropriate, effective and long-term solutions, the national economy will only achieve unsteady growth. It’s worth mentioning that after getting rid of the subsidy mechanism, the national economy developed in an imbalanced way due to unplanned investment and other factors.
An inflation risk also stems from the banking system’s management of monetary policies. One of the weaknesses of the Vietnamese banking system is that it has not completely controlled its monetary policies and not integrated well into the global banking system. As a result, the Vietnamese currency remains isolated and weak compared to other hard currencies in the world, prompting the devaluation process to happen sooner.
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