Economists say deflation, not inflation, is big worry for now

Feb 2nd at 14:16

02-02-2013 14:16:49+07:00

Vietnam feels joyful about its success in fighting against inflation, but deflation should be seen as a more serious problem, economists say.

In the updated report about Vietnam’s economy, ANZ Bank’s research team wrote that the January sharp consumer price index (CPI) increase of 1.25 percent over December 2012 and 7.07 percent over the same period of 2012 should not be seen as tendency. January is the month just before the Tet month, where the purchasing power always increases. After Tet, when the demand decreases, the price index would return to the normal track.

Emphasizing that the CPI increase in January was just temporary, the bank said that the quarterly inflation rate has hit the ceiling, which would be followed by the inflation rate decreases in the coming months.

Dr. Le Dinh An, former Director of the National Information and Socio-Economic Forecasting Center, has warned that he can see signs of the national economy falling into stagnation.

An said it’s now the right time to change the viewpoint about the economy regulation. It’d be better not to be too concentrating on the current problems, but to keep a long term vision.

Dr. Vo Tri Thanh, Deputy Head of the Central Institute for Economic Management (CIEM), noted that if the government overly concentrates on pushing up the economic growth, this would cause to the macroeconomic uncertainties and state budget deficit. Meanwhile, if it “makes a delicate touch,” this would not be enough to revive business and recover the national economy.

It seems that the government has got a bit embarrassed in deciding what it should focuses on – curbing inflation or stopping the recession. On one hand, it wants to pump more cash into the circulation to rescue businesses, and on the other hand, it fears the high inflation may return.

The fear about the high inflation proves to be a constant anxiety, which explains why the petrol price has been curbed over the last two weeks. The government has stated that the petrol price would not be raised in the immediate time.

Dr. Tran Dinh Thien, Head of the Economics Research Institute, said both consumers and investors keep cautious in their spending at this moment, which means that there’s not much possibility of expanding production and business in 2013. As such, this would be a big challenge for the government which strives to push up the economic growth again.

Striving for growth is the only way for us, according to Deputy Chair of the National Assembly’s Economics Committee--Nguyen Duc Kien.

90 million Vietnamese have entered the new year 2013 with the GDP value of $140 billion, the figure high enough for Vietnam to escape from the list of the very poor countries.

However, the current income per capita of $3-4 per day is too modest if compared with other economies in the world. Uncertainties still exist, while workers do not feel stable and safe about employment opportunities in 2013.

It was not a difficult task for the government to curb inflation in 2012. It is obvious that the price increases only occurred with some kinds of goods such as petrol, electricity, healthcare service… However, since the prices of the products have been controlled by the government, it could easily force the prices down.

Meanwhile, it was really very hard to push up the economic growth. The five GDP growth rate was really modest.

Former Governor of the State Bank--Cao Sy Kiem, warned that deflation proves to be a more serious disease than inflation, because it would make the national economy bog down in recession.