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High inflation remains the biggest threat
It is now clear that the inflation rate for the whole 2010 will be higher than the forecast level. In the last four years, the CPI forecasts have never proved accurate, which raises the problem of the reliability of forecasting and planning.
No forecasts prove accurate
The consumer price index (CPI) in October 2010 increased sharply by 1.05 percent in comparison with September, and by 9.66 percent in comparison with the same period last year. in the first 10 months of 2010, the CPI increased by 7.58 percent compared with December 2009.
With the CPI figures, it is clear that Vietnam has failed to curb the inflation at the rate below seven percent as decided by the National Assembly earlier this year.
Especially, it is highly impossible that the inflation rate in 2010 would be higher than the target eight percent set by the Government in April 2010. In order to curb the inflation rate at below eight percent, Vietnam needs to keep the CPI increases at no more than 0.42 percent in November and December, i.e the CPI can only increase by 0.2 percent a month.
Experts have pointed out that this is an impossible mission, because the CPI tends toincrease by more than one percent per month in the last months of the year. Meanwhile, the prices of goods are escalating as the result of the higher demand towards the end of year and the severe flood in the central region.
In late August 2010, when analysts warned about the possible high inflation rate, government agencies all assuredthat there were no reasons to worry and that everything was still under control. They affirmed that the inflation rate would be less than eight percent in 2010.
At that time, the Ministry of Finance forecast that the CPI in September would increase by 0.8-1 percent over August 2010. However, statistics later showed that the CPI increase reached 1.31 percent, thus pushing the inflation rate up to 6.46 percent.
The ministry thought that the CPI in October would increase by 0.4-0.5 percent over September and the CPI in the whole year 2010 would be eight percent. In reality, the CPIs in September and October has far exceeded the forecast levels.
Worries about 2011 raised
In early October, anticipating the high inflation rates, the Prime Minister released a directive on implementing the measures to stabilize prices.
It is clear now that the figures for 2010 will be less than ideal. The GDP growth rate may reach 6.7 percent in 2010, far exceeding the target level. Other indexes, such as the state budget deficit, exports and investments, are all satisfactory. However, the inflation rate will be higher than the target level.
In the last four years, the CPI forecasts were never accurate and in the end, Vietnam always fails to reach the CPI target. In particular, the actual CPI increase was once double the forecast level. On a number of occasions, the Government had to ask the National Assembly to adjust some of their macroeconomic targets.
In principle, when macroeconomic targets are set up, all policies must be designed so as to fulfill the targets. And when the targets are adjusted, the policies must be adjusted accordingly. In many cases, the policy adjustments may lead to bad consequences.
Just several months ago, the Government called on the banking system to ease interest rates in order to stimulate production and business. However, experts have recently advised tightening the monetary policies to help restrain inflation.
Most recently, the Prime Minister has told the State Bank of Vietnam to consider setting up a policy which would allow commercial banks to quickly withdraw cash from circulation in order to ease the pressure on inflation. Meanwhile, experts say Vietnam should learn the lesson from 2008, when cash was withdrawn from circulation and the banking sector was shaken, resulting in the monetary market getting a fit of fever.
Le Khac
vietnamnet
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