Wait and see
By Pham Vu in HCMC
If a poll was held to see what the biggest worry about the economy is at the moment, Vietnamese consumers would give the same answer: rising prices. For each and every person who goes shopping everyday, rapid consumer price increases in the year to date, especially since the pre-Tet (Lunar New Year) shopping season, top their list of concerns.
The pessimistic mentality that has penetrated people’s psyche is so severe that there has been speculation that the inflation forecast of 7% for this year seems to be a far-fetched goal. This has generated extensive media coverage which has in turn cast a gloomy shadow on all household spenders and, of course, manufacturers. Individuals’ incomes have failed to keep pace with price rises while producers have had to pay more for input materials and bank loans.
On the contrary, Government officials have given evidence that the economic picture is not as somber as reported in the media in recent times. In the worst scenario, inflation might be 8-9% this year, not a double-digit rate as feared, according to Le Duc Thuy, chairman of the National Financial Supervisory Commission.
Academics have warned of a return of a high rate of inflation as soaring material, energy and borrowing costs will eventually lead manufacturers to hike their product prices to stay afloat. Their worry has been proven by figures from the General Statistics Office which put the January-February consumer price index (CPI) at 3.3%, almost half the 7% target for all of 2010. And in their view, double-digit inflation would swoop down on the economy in the end.
A VnExpress.net news report quotes economist Bui Kien Thanh as expressing concern about growing consumer prices. It is impossible that goods prices will fall under the current circumstances, Thanh says. “Enterprises now find it extremely hard to access bank loans although interest rates are increasingly high. Given high borrowing costs, they have no choice but to mark up their products. If they cannot survive, goods supply (for the market) will fall short. Both ways will result in product prices picking up.”
The current market conditions are believed by economists and researchers to be unfavorable for any optimistic forecasts that consumer price increases would let up. In the same VnExpress.net report, Vu Dinh Anh, vice director of the Institute of Price Research, says a recent string of fuel retail price hikes and the forthcoming electricity tariff increases are among the factors that will affect consumer prices in March, which normally sets the tone for inflation trends as prices in the first two months of year are traditionally driven up by the pre-Tet shopping spree.
Downplaying such a concern, Le Duc Thuy, the former central bank governor, says his commission and the relevant ministries have found that there was no anomaly in the January-February CPI rise, Tuoi Tre reports. Citing the history of CPI trends, he says consumer prices in the first two months of 2004 rose 4.1% but inflation in all of that year was 9.1% and a year later, the January-February figure was 3.6% while prices in the whole year inflated 8.4%.
“Based on our research, the CPI in the first two months of each year accounts for 40% to 50% of the annual total,” Thuy says. “Though we must watch out (for the unexpected), there is no need to worry about the CPI in the first two months of 2010. This is also the Government’s view.”
Thuy, however, concedes that things could be different this year as the March CPI might be higher than in the same period of previous years, probably at 0.5-1%, citing the fuel, power and coal price hikes, and the depreciation of the Vietnamese dong against the U.S. dollar. Even if consumer prices up 0.5-1%, the first-quarter CPI could hit around 4% and inflation in all of 2010 would be in the desirable range of 8% and 9%, compared to the National Assembly-approved level of 7%, he notes.
But to rein in inflation, the Government will have to take coordinated action to appease panicked consumers, restrict credit growth to 25%, adopt a flexible foreign exchange policy based on market supply and demand, and freeze new coal and power price hikes in the rest of the year.
It holds true that consumer psychology plays a significant part in how market prices are determined since the hype surrounding inflation fears may stoke inflation itself. In a Saigon Tiep Thi article, scholar Nguyen Quang A says, “When everybody thinks that inflation will be high, that expectation may lead to a self-fulfilling prophecy and cause activities that will push up inflation.”
Speaking to the Saigon Times, Fiachra Mac Cana, managing director and head of research of HCMC Securities Corp., has a similar view, saying, “There are too many stories in the media at the moment worrying about inflation but they have little basis.”
The Government has done what needs to be done to cool down the economy as seen through the latest monetary policy changes designed to hike interest rates and slow credit growth so as to soften economic activity. What’s more, prices of diesel and fuel oils, and kerosene are down on Wednesday, giving a sigh of relief to many a sector and helping ease inflationary pressures.
But the possibility that some industries take advantage of inflation fears to profiteer is high as pointed out by Le Duc Thuy in Tuoi Tre. Therefore, Prime Minister Nguyen Tan Dung has ordered the relevant ministries and the provincial authorities to focus on placing prices of essential goods under control to beat rising inflation.
Mac Cana says that thanks to the Government moves, the problem with inflation is being solved. Nonetheless, not all market movements are predictable. Let’s wait and see.
The Saigon Times Daily