The forecast has been given based on two main factors

First, the decreases of input material prices in the world’s market in the last one month have helped eased the burden on local production. If the tendency continues, the situation will be considerably improved.

In fact, state management authorities and researchers still argue about which factors have caused the high CPI in the last eight months. However, it is clear that input material prices in the world’s market always have big impacts on the domestic market and the national economy, 80% of which relies on import materials.

According to the Ministry of Industry and Trade, the total import turnover of 12 key material items in the last eight months was $7.886bil, a sharp increase of $2.046bil, or 35.03% over the same period of 2006. Of this increase, $1.047bil worth of import turnover, or 51.17% were believed to have originated from the input material price increases.

Therefore, it proves to be good news to see input material prices down in August and the first two weeks of September. The International Monetary Fund IMF said that the average material price on the world’s market decreased by 4.39%, from 273.9 points to 262.1 points.

The most noteworthy thing is that the non-oil price witnessed sharper decreases than the items belonging to the power sector. Meanwhile, the oil and petrol import turnover of Vietnam now only accounts for 20% of total imports. While the prices of food and foodstuffs have just seen slight decreases, the prices of industrial materials have decreased by 7.1%.

Statistics for the last two years show that the price decrease tendency will be maintained in the last months of the year, as it occurred in 2005 and 2006.

Second, the above said things mean that instead of having to deal with the inflation caused by both the push cost higher demand, Vietnam will only have to deal with the inflation caused by the higher demand only.

In this case, the input material price would still be 15.46% higher than the same period of the previous year (the non-oil material price was 158.8 points in the last 8 months, while the figure was 138.4 points only in the same period of 2006, while the crude oil prices were 373.3 and 386.7 points respectively). However, the drastic measures taken by the government (cutting import tax) will help ease the impact of the price fever in the international market.

Moreover, the decision by the government to reduce petrol price instead of resuming the petrol import tax will show its desired effects in reducing the CPI increase.

In general, Vietnam has every reason to believe that the CPI will not see overly high increases this year.

Source: DTCK.