Declining CPI raises concerns

Declining CPI raises concerns

The unexpected decline in the Consumer Price Index (CPI) last month may lead to more financial market volatility, according to some participants at a conference held in the capital city yesterday.

The meeting, reviewed market and price fluctuations during the first half of the year and discussed concerns over continued financial market instability during the rest of the year.

Economist Ngo Tri Long, formerly from the Ministry of Finance's Institute for Price and Market Research, said the decline was due to economic difficulties, a fall in production, high inventories and low purchasing power but not due to cost reductions.

Nguyen Duc Thang, director of the General Statistics Office's Price Statistics Department, said he believed the decline in CPI was the result of Resolution 11's success in curbing inflation and stabilising the economy.

Nguyen Minh Phong, head of the Ha Noi Institute for Socio-Economic Development's Economic Research Division, said this was the first time in the last 20 years that demand had reduced to such a low level in some sectors. He said stagnancy in the real estate market had affected other business activities, causing a fall in incomes.

The decline was due to a shortage of capital among businesses despite the Government pumping VND300 trillion (US$14.42 billion) into the market, Phong said.

Vu Vinh Phu, chairman of the Ha Noi Supermarket Association, said decreasing demand was the main reason for the deflation. Turnover of the city's supermarkets reduced by 10 to 20 per cent despite promotional campaigns. He said this was also despite 70 per cent of people's incomes being devoted to spending on food and foodstuffs.

Phu said market prices were higher than people's purchasing power even though the CPI had declined.

Prices were higher than 2-3 years ago even though the cost of many items fell slightly in May and June, he added, blaming distributors on driving prices even higher with excessive charges.

Sharing the same outlook, professor Tran Xuan Ha said the real profits were being made by distributors and not producers or consumers.

Economists proposed that the key solution to resolve the issue was to focus on output, releasing inventory and increasing purchasing power.

They also warned about signs of inflation in the second half of the year as prices for water and electricity have steadily increased.

Nguyen Loc An, deputy director of the Ministry of Industry and Trade's Domestic Market Department, said purchasing power in the last six months of the year would improve. Prices of some items would also increase slightly.

Experts forecast the CPI this year would be 6-7 per cent, while this month it would continue to fall.

Ngo Tri Long said the country has been successful in curbing inflation for the short-term as average inflation in the 2007-11 period was still at 13 per cent.

However, Nguyen Duc Thang said concerns over deflation were premature. Solutions such as restructuring business administration and better market control would be more successful than a short-term focus on monetary policies.

The Finance Ministry would instruct transport businesses to list fares in line with falling petrol prices. It would also enhance checks on items listed in the price stabilisation fund.

Statistics from the GSO showed that in the first half of the year, average CPI increased 0.24 per cent each month, a slower rate than for previous years.

vietnamnews