Consistently curbing inflation

>> Government calls for coordinated efforts to curb inflation

>> Key tasks for the second half of this year

Vietnam’s economy faced a number of difficulties in the first half of this year. The consumer price index (CPI) increased by 13.26 percent in the reviewed period compared to the same period last year. CPI is an index which measures the economy’s inflation. A target for controlling this year’s CPI at approximately 7 percent could not be fulfilled.

At the Government’s regular meeting in June, a target was set to sustain the rate of inflation at 17 percent, which will be very demanding if measures are not comprehensively implemented.

The most difficult task facing the economy in 2011 is the high inflation rate. The General Statistic Office (GSO) analysed that price hikes of input materials, such as electricity, coal, and petroleum and other factors are attributed to CPI growth of 4 percent. Inflation rate in the first six months of this year was around 9 percent while GDP grew by only 5.6 percent, meaning growth efficiency was not high.

Those who are seriously affected by the high inflation rate include pensioners, the poor and low-income people whose spending is mainly for basic needs. The Government has issued social welfare policy to assist these subjects, such as reducing electric prices for poor people, providing allowances for low-income people and raising basic wages. However, these appear to be only temporary solutions. The key solutions include curbing inflation and preventing price hikes so that citizens can afford essential products and services as well as trusting the government’s management policy.

The Government‘s management effort through the State Bank of Vietnam (SBV) of applying the tightened monetary policy in the past six months partly contained inflation rate. The CPI in May and June fell.

We should remember the lesson of inconsistent management in 2010. In the first half of last year, the monetary policy was considered to be very tight so the credit growth stood at 10 percent and money supply grew by 7 percent. In the third quarter when inflation seemed to be controlled and the monetary policy was loosened, the credit growth was pushed up to 31 percent and money supply by 28 percent. Together with other factors, including natural disasters, CPI increased sharply in the fourth quarter.

The monetary policy was basically implemented according to the Government’s Resolution 11, however, the fiscal policy seems not to be in line with the monetary policy and public investment cut has not achieved expected results.

To control this year’s inflation rate of 17 percent, as the Government expected requires consistent and comprehensive implementation of the fiscal and monetary policies in the remainder of this year. The Government will strictly control money supply, reduce the economy’s total supply, improve the production efficiency, and focus social investment on sectors which use capital effectively to ensure sustainable development.

The GSO reported that to create one Dong of GDP required VND7.38 of investment in the first half of last year while in the same period this year the creation of one Dong required only VND6.9 of investment, thus investment efficiency has been improved.

The GSO also reported that in the first half of this year, while investment capital of the State-owned sector declined, that of the private sector increased by nearly 15 percent. This demonstrates the dynamics of the private sector.

The Government should promote all available resources, especially the private economic sector to manage the economy.