Lowest inflation rate in 10 years causes concern
Lowest inflation rate in 10 years causes concern
Several years ago, the 2-digit inflation rate was a major economic blow, but this year it is the low inflation rate, a 10-year low, that has people and policymakers worried.
Two months ago, a debate was triggered when economists predicted an inflation rate of 5 percent for 2014. The National Assembly’s committees voiced their concern that the low inflation rate would have a negative impact on businesses’ operations, jobs, GDP growth and fiscal policy as well.
The Ministry of Planning and Investment (MPI) said the predicted inflation rate would be beneficial because it would help stabilize the macro-economy.
Inflation was not a hot topic at the National Assembly’s eighth session. The reports by government agencies all mentioned the low inflation rate as a great achievement in 2014.
Only the National Assembly’s Steering Committee’s report emphad the necessity of controlling inflation so that the rate would not be “too low”, because a reasonably high inflation rate would facilitate the enterprises’ operations and help create jobs.
Three weeks later, answering questions before the National Assembly, the Prime Minister said the inflation rate in 2014 may be at 3 percent, saying that this would help stabilize the macro economy.
But economists have most recently said the inflation rate would be 2.5 percent, the lowest rate in the last 10 years.
If the prediction comes true, i.e., the consumer price index (CPI) increases by 2.5 percent by the end of the year, the 2014 inflation rate would “go beyond expectations”.
The government earlier this year set a target that the inflation rate would not be higher than 5 percent.
For economists, the low inflation rate is a result of low total demand in the national economy, which is not a good sign.
An expert, who is now the director of a research center in the private economic sector, said the predicted low inflation rate at over 2 percent shows that there are “problems” in the forecasting capability of government agencies or statistical work.
“This also shows the slow reaction of the appropriate agencies,” he said. “The signs of low inflation appeared in early the fourth quarter of 2014.”
The expert suggested changing the way of setting inflation targets every year. He said it would be better to set both the floor and ceiling inflation rates and apply monetary tools flexibly to obtain different macroeconomic goals.
For example, he said, in 2014, the government should have set the ceiling inflation rate at 7 percent and the floor rate at 4 percent.
