The current method of calculating CPI being used in Vietnam is thought to show many shortcomings and not suit international practice.

According to Tran Kim Dong, Director of the General Department under MPI, under the currently applied method, GSO calculates the average CPI and compares it to the figure of December the previous year. With the current calculation method, the CPI will always be influenced by the CPI of December. 

In Vietnam, December is the month just before the lunar new year (Tet), when the prices of commodities and services always go up. As such, if comparing to December, the CPIs of subsequent months always see low increases, while the CPIs of the later months always see high increases (as prices in the months after Tet always go down). 

“Other countries do not use the method Vietnam is now using any longer due to the low accuracy of the method,” said Mr Dong. 

Mr Dong said that a new method of calculating CPI would be preferable, under which officials would compare the monthly CPI with the same period of the previous year. This method is being used by most countries in the world. 

With the suggested method, the impact of the price increases in the months just before Tet will be excluded as CPIs of different months will be compared with each other instead of with December of the previous year. 

The most important advantage of applying the suggested method is that Vietnam would follow international practice in calculating CPI. This would help more easily compare Vietnam’s CPI with other countries’ as the same calculation method is applied. 

The change in the calculation method would certainly lead to a change in result. Mr Dong said that if applying the new method, the CPI would be 7.5-8% in 2007, which is far different from the expected figure of 8.4-8.5% if calculating with the currently applied method. With the expected CPI of 7.5-8%, the figure proves to be not worrying. 

Nevertheless, Mr Dong said that the new calculation method could not replace the currently applied method immediately, saying that it would need the so-called ‘transitional period’ before the new method could be applied. People should also be well informed about the new method to avoid possible psychological changes when seeing changes in macroeconomic targets. 

Source:  VIR.