The General Statistics Office (GSO) has announced that the CPI increase for the 11 months of this year was 9.45%, worrying many that Vietnam may see a two digit number this year.

However, Deputy Minister of Finance Tran Van Ta, unveiled a surprising, 7.92% so far this year. Mr Ta said that the current CPI calculation method, which compares the current CPI of every month to the CPI of the previous December, does not correlate with international methods. He said the Ministry of Finance has repeatedly requested a more accurate system to more exactly reflect the health of the national economy.

According to Nguyen Duc Thang, Deputy Director of Trade, Services and Prices under the GSO, up to now, the GSO calculated CPI by comparing four time periods: their decided upon original year (2005), the same period of the previous year, December of the previous year and the previous month.

Mr Thang said that a new calculation method would be applied as of 2008, where CPI will be calculated and compared based upon the current year against the previous year only. For instance, third quarter CPI of a specific year will be compared to third quarter CPI of the previous year or the 11 month CPI of a specific year will be compared to the 11 month CPI of the previous year.

Based on this new method, this year’s CPI so far comes to 7.92% when compared to the same period last year. The expected figure for all of 2007 will then fall between 8.14-8.2%; a much better and more appropriate number, especially when compared to a figure that under the previous system might have been two percentage points higher.

Under the new method, no changes will be made to the analysed basked of commodities, of which food products will still account for 42.85%. To most accurately survey the economy, the GSO will review the basket every four or five years.

According to Mr Thang, the percentage of which food is accounted for in the basket of commodities is different in different countries. Developed countries in Asia like Japan, the Republic of Korea and Singapore, food products account for only 20-30%. Meanwhile, countries with lower living standards like the Philippines, India or Vietnam see a number nearer to 40 or 45%.

At a meeting in June 2007, Le Manh Hung, General Director of the GSO, said a monthly CPI calculation would not provide an accurate economic analysis. In reality, it can take time for Government decisions with significant economic impacts to be felt. For example, consequences of the State’s decision to increase the price of petrol in May, did not hit the market until several months later. Meanwhile, the CPI for May had already been announced in mid-June. Mr Hung said that it would be more accurate to calculate CPI quarterly.

The Ministry of Finance’s CPI figure of 7.92% has helped ease Vietnamese families’ concern. However, analysts said the Government still needs to focus on measures to curb price increases.

“9.45% and 7.92% are different results of different calculations. However, increasing prices is a real and prevalent concern, and the Government should take action to minimize the inflation’s negative impact on the national economy,” said Nguyen Minh Phong, Head of Economics Research under the Hanoi Socio-Economic Development Institute.

According to Mr Phong, the ideal inflation rate would be 5%, that of a healthy economy. Under 10% would be considered acceptable and a rate greater than 10% is considered a high risk.

Analysts warned the inflation rate would reach two-digits this year, and greatly impact the economy, people and society.

Amongst other effects, the business environment would be influenced as the State Bank would be forced to tighten credit. Higher prices also mean higher production costs.

Meanwhile, Tran Dinh Thien, Economist from the Vietnam Economics Institute, said that low income earners would be the primary sufferers of high inflation. On a larger scale, when inflation is high, the national economy would appear unstable and thus less attractive in the eyes of foreign investors.

Source: Vneconomy