Local experts expect a slightly higher rise for the consumer price index (CPI), the indicator that measures the change in prices of consumer goods and services.

Institute of Commerce Research’s Head Nguyen Van Lich predicted a 7.5 to 8 percent increase in CPI in 2008, a trifle lower than last year’s rise.

Lich said the upward trend in prices and inflation world-wide would continue.

“Crude oil prices, for instance, are likely to maintain their high levels, and so are gold prices,” Lich said.

On the domestic market, the upward pressure on prices will continue because of factors such as high interest rates and continued foreign investment inflows.

Nguyen Thi Nhieu, also from the Institute of Commerce Research, said the CPI might increase by 1 to 2 percent a month in the first few months of the year, pushing prices higher in the domestic market.

Later in the year, Nhieu said, prices would continue to rise - albeit at a healthier pace - with the average increase by year’s end to settle at around 7.5 percent.

Other experts agree that, in the long run, a high but stable level of prices will be maintained because of the government’s ongoing effort to meet its World Trade Organization (WTO) commitments.

The government has pledged to continue to slash taxes on various categories of goods to comply with the WTO’s common tax rates, according to Hanoi Institute of Economic and Social Development and Research’s Economic Research Department’s Head Nguyen Minh Phong.

Phong said prices of these goods would definitely fall while prices of other items, including electricity, gasoline, medicine and steel, would surge as the government relaxed its control as part of its international trade agreements.

“Taken as a whole, a new high price level will be established,” Phong said.

“But there will be no negative super-inflation or sudden changes.”

Phong also predicted the CPI would rise by 7.5 percent, though he said this depended very much on the government’s actions.

Tips for the government

“The task of protecting consumers in the face of increasing prices ultimately falls on the government,” Phong said.

He said the government would be wise to adopt a flexible salary policy to ensure incomes caught up with increasing prices.

Better yet, according to other experts, the government should step aside to let businesses, associations and unions determine the appropriate wage levels according to market rules - albeit under government over-sight to ensure fairness.

Another suggestion was for the government to foster healthy competition in the market, the ultimate factor in keeping prices under control.

“If the government allows businesses to freely compete with each other on the market, they (businesses) will find it urgent to reduce prices to attract customers,” Phong said.

An example, some experts said, was to allow more players in the gasoline and oil importing field.

Head of the Bureau of Price Management’s Policy Department, Nguyen Duy Thien, suggested the government should encourage local exports and importers to sign fixed-term contracts to minimize the negative impacts of volatile prices.

But the ultimate solution to deal with negative influences of the inter-national market, including rising prices, was to develop a strong and stable economy, Thien said.

To do this, he said, companies should be encouraged to speed up construction of domestic material manufacturing factories and to import input materials from a diverse range of sources in order to minimize the dependency on world prices.

“The government should also continue to facilitate different types of markets including real estate, capital and investment, labor, services and science and technology products,” Thien said.

Source: TBKTSG