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The inflation story in 2011 and the “once-hurt” scenario
People complain that the decision by the government to raise the prices of essential goods and the dong devaluation have made the consumer price index (CPI) increase sharply. However, experts have pointed out that the price increases are a part of the plan to curb inflation in 2011.
No government agency has come forward and announced any scenario for the inflation in 2011. Meanwhile, analysts say the moves by government agencies in the first months of the year are not contrary to the efforts to curb inflation as people thought.
In late February, a lot of important decisions were made, including the adjustment of the exchange rate, the electricity price increases, and then the petroleum price increases. According to Minister of Finance Vu Van Ninh, the above adjustments will make the CPI increase by two percent more in 2011.
Prior to that, according to the General Statistics Office, the CPI increased by 3.78 percent in the first two months of the year, mostly because of higher demand during the month of Tet. If noting that the inflation rate set by the National Assembly is seven percent for the whole year 2011, one would see that in order to fulfill the plan, the CPI must not increase too sharply in the last 10 months of the year.
Some experts have warned that it would be an “impossible mission” for Vietnam to curb the inflation rate at less than seven percent. BBC quoted economist Christian de Guzmanb of Moody’s rating firm as saying that the price increases of key input materials in the national economy like electricity and petroleum will surely make the inflation picture a little worse in 2011.
However, in recent days, the government has sent a message reaffirming to the public that stabilizing the macro economy and curbing inflation will be the top priority in 2011. To show its determination to curb inflation, the government in late February announced a solution package which focuses on tightening the monetary policies, reducing budget overspending, reducing trade deficits, strengthening production and marching towards the market price mechanism.
Commenting about the solution package, Mr Guzmanb of Moody's also thinks that the government is going the right way, especially when high inflation is an obvious danger for Asian countries, including Vietnam.
Meanwhile, Dr. Tran Du Lich, a well known economist, now a member of Economics Committee of the National Assembly, and a member of the Vietnam Advisory Council for Monetary Policies has affirmed that he cannot see any conflicts in the government’s decision to raise the electricity and petroleum prices and its determination to curb inflation.
“These (The moves) are just the solutions that must be done to curb inflation,” he said.
According to the expert, the sharp price adjustments in the last few days can help break people’s expectations about high inflation that have persisted for a long time.
“With the latest price adjustments, the prices will go up sharply in the immediate time, and the inflation rate may reach seven percent right by the end of the second quarter of the year. However, the prices will be stabilized in the last two quarters of the year,” Lich said.
“It would be better if the prices increased sharply once and then stabilized,instead seeing the prices going up a little every month,” he added.
“The price stabilization will allow businesses to easily set up their business plans,” he added.
Experts call this the “once hurt” solution, i.e the solution under which people may be severely hurt in one instance but will feel safe and stable later.
Sharing the same view with Lich, analysts from BIDV Securities Company said that the CPI increases may be high in the first two quarters of the year, but the situation may be less tense in the last months of the year.
Meanwhile, other experts remain cautious when talking about the inflation rate in 2011. “The oil price has climbed to 100 dollar per barrel. If the price increases by 20 dollars, the economy will lose one percent of growth and this will severely influence the inflation rate,” Dr. Nguyen Duc Kien, a Member of the National Assembly’s Economics Committee warned.
vietnamnet, VnExpress
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