Vietnam - Inflation fight comes with collateral damage

The government may succeed this year in bridling inflation, but not without some cost to local business performance.

The General Statistics Office (GSO) last week announced that the consumer price index (CPI) for October rose 0.85 against September. The CPI for the year’s first ten months rose 7 per cent on-year.

According to the GSO this low CPI level reflects the impact of Prime Minister Nguyen Tan Dung’s instruction on pricing control for 2012’s remaining months which was released last month when CPI suddenly climbed 2.2 per cent. That figure represented the highest monthly augmentation since June 2011, hitting a record high for respective Septembers from 1995 to 2011.

“High inflation has been successfully curbed since early this year. We will use many measures to tame inflation at around 8 per cent for the whole 2012,” Dung told the 13th National Assembly’s ongoing fourth session.

National Assembly member and economist Tran Hoang Ngan said in order to achieve the 8 per cent target, the CPI for November and December must be curbed at 0.5 per cent monthly.

“I believe that such a target will be reached because of the prime ministerial instruction and the existing fiscal and monetary policies. However, such CPI success means a sinking in local demand for goods and production, reflecting a dark side in the government’s macro-economic monitoring,” he said.

Economist Tran Du Lich, also a member of the top law-making body, said besides difficulties from the global economy, the government’s tight fiscal and monetary policies had restrained enterprises from accessing bank loans. This had led to a decline in local production.

“Thus the CPI reduction mirrors the government’s success theoretically. The main reason for the CPI decrease is local production difficulties and businesses’ poor performance,” Lich noted.

According to the Ministry of Planning and Investment’s (MPI) report released last week, the index of industrial production (IIP) in the first 10 months of this year increased 4.5 per cent on-year, of which the mining industry saw an on-year IIP rise of 3.9 per cent, processing and manufacturing 3.8 per cent, and production, electricity and gas distribution 12.8 per cent.

“The low IIP of the processing and manufacturing industry shows businesses are still encountering a lot of difficulties,” said MPI Deputy Minister Cao Viet Sinh.

The report also shows the inventory index of processing and manufacturing industry saw a slight fall in recent months, but remains high. The index rose 20.3 per cent as of October 1, down from 20.4 per cent as of September 1, 20.8 per cent as of August 1, 21 per cent as of July 1, 26 per cent as of June 1 and 29.4 per cent as of May 1.

In the 10-month period, export turnover fetched $93.45 billion, up 18.4 per cent on-year, of which, the foreign-invested sector took $51.55 billion (excluding crude oil), up 34.9 per cent on-year and the domestic economic sector made up $34.9 billion, up only 0.8 per cent on-year. Meanwhile, import spending was $93.8 billion, an on-year rise of 6.8 per cent. Of which, the foreign-invested sector accounted for $49.2 billion, up 23.9 per cent and the domestic sector $44.62 billion, down 7.3 per cent on-year.

Thanh Linh | vir.com.vn

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