According to the General Statistics Office (GSO), the CPI in the first 10 months of the year increased by 8.12% over December 2006, and 9.34% over the same period of last year. The increase of 9.74% was reported for urban areas, while the increase of 8.92% was reported for rural areas

Experts say that it is necessary to accept a high inflation rate to achieve a high economic growth rate. However, there still are six reasons to worry about the high inflation.

First, though the price increases in the world have been blamed for the CPI increase in Vietnam, people believe that this is not the main reason. Other regional countries also have been suffering from the world’s price hikes, but their inflation rates are not as high as in Vietnam, with inflation rates staying at 4-5% only.

Experts have pointed out that the high CPI in Vietnam is because of the problems in the inner national economy, including the one relating to money. The credit growth rate of Vietnam has been maintained at a high level of around 30% for the last six years. The supply of VND has increased sharply since the state put a lot of VND into circulation to stabilise the exchange rate.

Second, the high price increases have worsened the living standards of the majority of people, especially those who have low incomes. According to GSO, in rural areas, the number of poor households increased by 44% in October 2007 compared to October 2006, while the number of poor persons increased by 47%.

There are many reasons behind the increase in the percentage of poor households, but the price hike has been cited as the main reason. Food and foodstuff prices have increased by 13.52% and 9.15%, respectively, higher than the CPI increase.

Third, as the inflation rate is higher than the deposit interest rate, people get minus profit for their deposits. As a result, people have shifted to inject money in more profitable fields like real estate or securities. The overly high investment in real estate has sparked worries about the ‘real estate bubble’, harmful for the national economy.

Fourth, the high, and to some extent, unpredictable inflation, has caused instability, thus raising transaction costs and reducing the economy’s efficiency. Moreover, the high inflation will surely weaken the competitiveness of exports and of the national economy.

Fifth, Vietnam is striving to ‘keep the inflation rate lower than the GDP growth rate’ (this principle has no precedent), and in order to reach that end, the government has two solutions. First, it has to curb inflation by reducing the money and credit supply, while reducing government spending. Second, it has to make every effort to reach high GDP growth.

The first solution seems to be not the choice of the government, while the second solution proves to be not the right one, as it would only worsen the situation. Experts say that the target of ‘keeping the inflation rate lower than the GDP growth rate’ should not be maintained any more due to its unreliability.

Sixth, the actual inflation rate is believed to be higher than the announced rates of 8% or 9%.

Source: TBKTSG