Vietnam insists on battling inflation

by lexie Wed Dec 28, 2011 4:21 pm

December 28, 2011

Vietnam insists on battling inflation

The Vietnamese Government is determined to bring down inflation to below 9% next year by continuing its monetary and fiscal tightening policies and renewing the economic growth model.

Data released by the General Statistics Office (GSO) shows inflation in Vietnam hit 18.58% in 2011, far outdistancing the target of 7% set by the National Assembly (NA) a year ago.

Vietnam has been experiencing double-digit inflation since 2007, except in 2009, when it was brought under control at 6.88%. Economic growth is not keeping pace with the country’s rampant inflation rate, which is among the highest in the world.

The effective implementation of the Government Resolution 11 over the past year, particularly the tightening of monetary and fiscal policies, has slowed down the month-on-month inflation rate since August. However, the annualised inflation rate in December remains high at 18.13%.

Experts say Vietnam’s consumer market in 2012 will continue to experience complicated and unpredictable developments amid global economic uncertainties, which threatens to push up inflation.

Given the current situation, the Government will continue prioritising curbing inflation and stabilising the macro-economy in 2012, in order to lay the foundation for economic growth and sustainable development in the following years.

The Government aims to cut inflation to below 9% in 2012, but this goal is unlikely to be achieved if drastic measures are not taken to keep inflation in check right from the beginning of the year, especially during the national Lunar New Year celebrations in January.

The consumer price index (CPI) is forecast to rise in January as Vietnam expects to see a surge in demand for consumer goods, travelling and entertainment activities during the week-long holiday.

Managers and economists have conducted in-depth analysis and concluded that Vietnam’s soaring inflation is caused by a combination of reasons including cost-push inflation, demand-pull inflation and deep-rooted structural weaknesses in the economy.

Therefore, reducing inflation to below 9% is very challenging and requires synchronous measures including tightening monetary and fiscal policies, reducing the trade deficit, and the consensus of ministries and relevant agencies on pursuing the common goal.

In the past year, tightening monetary and fiscal policies has produced some encouraging results. Reducing the supply of money contributed significantly to falling inflation in the last months of 2011.

The Government recommends continuing with the tightened monetary and fiscal policies with considerable caution to keep inflation under control in 2012 and thereafter.

One of the underlying causes of Vietnam’s high inflation is its obsolete growth model, in which economic growth is largely dependent on capital- and labour-intensive production, rather than effective investment.

Therefore, restructuring the economy and renewing the growth model should contribute substantially to the Government’s efforts to curb inflation.

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