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High inflation erodes economic growth   2011-01-02 - SGT

December’s strong price rise has sent the consumer price index in all of 2010 surging to a higher-than-expected level of 11.75%, thus eroding the country’s hard-won economic gains.


Consumer prices are forecast to grow 1.98% this month, the highest monthly rise this year, which strong affects the year’s CPI, according to the General Statistics Office.


Experts told local media they were not surprised as the market trends had shown the impossibility that inflation could be kept at a single-digit rate of 7% as approved by the National Assembly.


The sharp CPI increase in the last quarter of the year is ascribable to poor management of money supply on the market, Le Dinh An, director of the National Center for Socio-Economic Information and Forecast, told Phap Luat newspaper.


Moreover, he added, fiscal and monetary policies have not been in tandem, with free-wheeling public spending remaining inefficient but monetary tightening hitting the corporate sector hard due to increasingly difficult access to expensive bank loans.


The nation’s two biggest cities, Hanoi and HCMC, have a lower CPI than the national level, at 1.83% and 1.61% respectively. An explained public spending has not been focused on these two cities but other parts of the country. But these two rates are still higher than in previous years.


The high inflation indicates the low quality of economic growth and cuts into incomes of salaried people and the poor.


Consumer prices are forecast to continue leaping into next year as 10 of 11 key groups of items have registered higher prices in December.


Food and food services have risen most, at 3.31%, followed by homes and construction materials at 2.53%, garments and footwear at 1.81%.


For fears that inflation would get out of control, Prime Minister Nguyen Tan Dung has ordered ministries, other relevant agencies and provincial governments to impose price controls, especially ahead of the Lunar New Year holiday, or Tet, when prices normally surge due to stronger demand.


The provinces and cities will have to implement price stabilization schemes, particularly for essential goods like fuels, foods and foodstuffs, and closely monitor the market so as to intervene in any supply shortfall in a timely manner.


The Government leader has also told ministries and local authorities to practice thrift and give priority to natural disaster relief and social security efforts.


The country’s 2010 economic growth, forecast at 6.5%, depends heavily on investment and export, but material for export processing is mainly imported, so the trade deficit is predicted to reach US$12 billion, 16.9% of total export revenue.


Speaking at a session of the National Assembly Economic Committee in Hanoi on Saturday, the central bank governor, Nguyen Van Giau, attributed high inflation to irresistible factors like natural disasters and volatile world prices.


This reflects a conclusion by the National Financial Supervisory Commission that said runaway inflation in recent months had resulted from both poor management and outside factors.


Giau said many had pointed the finger at the central bank’s ad hoc monetary policy making that had sent the market into chaos. “I do affirm there have been no hiccups relating to management.”


He said views that things had got out of the central bank’s control had left a negative impact on the market as well.

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