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Finance Ministry expert says price increases are ‘no surprise’
Three straight months of consumer price increases (0.35%, 0.44% and 0.55%) have raised public apprehension that another inflationary period is beginning. However, Dr. Vu Dinh Anh, Deputy Head of the Market and Price Research Institute at the Ministry of Finance is not worried. “The CPI increases are not a surprise at all,” he says, and predicts that they will not exceed 10 percent for all of 2009.
Anh told the online journal VnEconomy that “we can say for sure that the consumer price performance in the first six months of the year was according to economic laws. It followed exactly the same path that prices did in the first six months of 2007. The price went up in the first two months of the year (the Tet holiday – ed.), went down in March and then went up again for the next three months at an increasing rate.
However, the price increase every month so far this year was lower than that of 2007. For example, in May, the CPI increased by 0.44 percent, compared to 0.77 percent in May 2007. This month (June), the CPI will rise by 0.55 percent, while it was 0.85 percent in June 2007.
The CPI increases are not a surprise at all. We should be glad because the increases are relatively low.
Why is the CPI performance in the first six months of the year is similar to that in 2007?
Let’s recall the economic situation of 2007. That year, we strived to obtain a high economic growth rate of 8.5 percent. We loosened monetary policy, and finished the year with 8.48% growth.
The situation seems to be similar in 2009. We are striving to obtain a “not too low growth rate” instead of striving to obtain a “high growth rate.” I mean we still strive for economic growth, and similar policies have been applied.
The Ministry of Planning and Investment has announced that the total money supply (M2) has increased by 16 percent and the outstanding loans have increased by 17 percent compared to the end of 2008. How have these factors affected prices in the first half of the year?
The four percent interest rate subsidy program has caused a large amount of cash to be put into circulation. But that was a one time stimulus. If the increase in the money supply is held to 25 percent from now to the end of the year, there will be no possibility of inflation.
In general, an increase in the money supply will push up prices six months later. Thus the money supply increase of 2007 led to considerable inflation in 2008.
Do you mean that we will face high inflation in 2010 if we put a lot of money into circulation in 2009?
Money supply is just one factor that can cause high inflation. We still have to consider the spending of the state. The state budget deficit has been set at eight percent. If the state’s investments are effective, this will not cause high inflation.
Let’s me explain this. If the State spends money on building a road, it seems at first that this will cause inflation because the state puts money into circulation. However, if the state’s investment brings an economic benefit that stimulates additional production, this will not cause inflation.
In the first three months of the year, some 70 tons of gold were exported, which brought in $2.3 billion in cash. Do you think that the influx of cash will affect the CPI?
As far as I know, the $2.3 billion has gone to gold trading companies and banks and has been staying there.
Bank interest rates have been going up. Will this lead to interest rate increases by making capital costs higher and goods prices higher?
Think this way. When the interest rates go up, this will help reduce inflation because it will help lessen the supply of money in circulation.
Businesses will think twice before deciding whether to borrow money, and, if they borrow less, their production is likely to be less too.
Some experts have warned that high inflation is going to return. Do you agree?
It’s not worth worrying about, in my opinion.
We have implemented demand stimulus packages and we have hit our target for increased consumption (the total retail turnover of goods and services in the first six months of the year increased by 20 percent over the same period of the last year). This is a good thing. If we were to think that prices go up because of higher consumption and try to reduce consumption, of course that would undercut the objective of stimulating demand.
How high will be the inflation for 2009, then?
I think that the inflation will be held to below 10 percent.
VietNamNet, vneconomy
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