The consumer price index (CPI) in May rose by 0.6 percent against April, which was a little higher than the Ministry of Trade’s forecast of between 0.3-0.5 percent. The May figure drove CPI in the first five months of this year to 3.6 percent. According to the Ministry of Trade, the domestic market is expected to see possible fluctuations in the prices of petrol and gold, which will likely to have a domino effect on other commodities.

After long delays, the electricity sector is expected to submit a plan to increase the electricity price to speed up its development projects and meet the increasing demands for power consumption among the population. People wonder if an increase in the electricity price, expected on July 1, 2006, could spark new price hikes in the domestic market.

Currently, the rice of steel for construction projects is increasing constantly. 6LD and 8VN steel in Hanoi, Ho Chi Minh City, Hai Phong and Can Tho is selling for between VND8,400-8,500/kg, while steel mills sell similar types for only VND7,500-7,800/kg. On average, the price of each type of steel in the free market has increased by VND400-500/kg against the previous week and VND500-700/kg compared to the first quarter of 2006. Many other major commodity producers have also made plans to hike prices.

Economists said the risk of possible price hikes is attributed to the instability of the domestic market, which has already absorbed the soaring prices of oil and many other major materials, leading to an increase in production costs. However, several commodity producers are currently under pressure not to increase prices.

It is worrying that price protection and control policies are creating virtual competition and profit among producers. Consequently, producers pay less attention to measures to cut production costs, or renovate management skills and technology to create real competition among products. In addition, in the long term, the maintenance of price control policies will run counter to the integration trend.

Trade Minister Truong Dinh Tuyen said, "Currently, global prices fluctuate in a complicated manner and it is hard for policy makers to forecast the trends. If it were just global oil prices that were rising, Vietnam will not be affected much thanks to the country’s large crude oil exports. However, once oil prices rise, they affect other commodities such as plastics, and steel and iron, leading to a rising CPI. Therefore, domestic prices should be adjusted so that they are closer to the real value. By doing so, the prices could fluctuate for one or two years before being adjusted in line with market prices."

According to Minister Tuyen, his ministry is submitting a plan to the Government to adjust domestic prices to be closer to global prices. However, he admitted that price hikes recently were also attributed to other causes, including public administrative transaction fees, corruption and negative phenomena in management.

Obviously, CPI is facing mounting pressure from both old and new factors in the national economy. Therefore, CPI fluctuations in the coming time depend a lot on State agencies’ performances.

Source: VOV news 26/05/2006