Vietnam – CPI: from dining to conference table

Last weekend, I visited the family of an acquaintance and fell into a funny situation. Everything began from a discussion about the consumer price index (CPI).

At the dinner, the husband said he could not understand why people are screaming when the inflation rate is so low.

Hearing that, the wife actually screamed. After citing a lot of goods that have had price increases, she told her husband: “Go to market and see if your salary is high enough to support the family and feed the two children.”

The wife, like millions of other women who balance checkbooks at their homes, now feels constant anxiety about the price increases of goods and services. 

However, the husband had reasons to say that the inflation rate is low and inconsiderable. The General Statistics Office (GSO) reported that the CPI in the first six months of the year increased by only 2.44 percent, while the core inflation rate increased by 1.25 percent over the same period last year. These are mild increases and far different from what is happening in real life.

Late last week, Chair of the Vietnam Association of Construction Contractors Nguyen Quoc Hiep sent a report to the Prime Minister, citing difficulties, including the heavy fluctuations of material prices.

Since late 2020 and early 2021, steel prices have increased by 20-60 percent, cement prices from VND1,400 per kilogram to VND1,980, and asphalt from VND11,000 to VND15,500 per kilogram. Hiep said all building materials are seeing sharp price increases, thus increasing bidding package costs by 18-30 percent. Because of these challenges, construction companies are fading away.

The screaming from business associations about price increases can be heard everywhere, at forums, seminars and in newspapers. But it is not shown in the CPI calculated by GSO.

CPI steady

As Vietnam’s economy has high openness, events in the world market have an immediate impact on the domestic market. However, the CPI in Vietnam is going against the upward trend that is seen in markets with which Vietnam has close trade ties, such as the US, EU and Japan.

IMF has predicted that the inflation rate will be 5.7 percent in developed economies, 8.7 percent in emerging markets and developing economies, or 1.8 and 2.8 percentage point higher than the level predicted earlier this year.

According to former GSO’s general director Nguyen Bich Lam, every 10 percent increase in petrol prices  increases the CPI by 0.36 percent of GDP. The petrol price increases not only lead to price increases of goods and services, but also to a higher CPI.

Moreover, China is pursuing its zero Covid policy, which has caused disruption in supply and production chains, and it is still unclear when the problem will be settled.

A question has been raised about why the Vietnam dong price is high if the official CPI is so low. Local newspapers report that deposit interest rates offered by some commercial banks have soared to 7-7.3 percent. A banker said that lending interest rates have surged to 10-12 percent at some banks, while borrowers in many cases have to spend 2-3 percent additionally to get loans.

There are also other factors that cause inflation, including a high credit growth rate of 17.09 percent, money supply of over 180 percent of GDP, and an increase of 11.7 percent in total retail sales of goods and services in H1 in comparison with the same period last year.

Pham The Anh from the National Economics University pointed out that the modest 2.44 percent inflation rate in the first six months “doesn’t truly reflect the real situation”.

“The figure is inaccurate, doesn’t truly reflect the real situation and has no reference value. It doesn’t help policymakers make reasonable decisions and it even worsens the policy-making abilities of state agencies,” Anh told Tuoi Tre. 

Statistics play a very important role in making policies. The story of 15 years ago shows this.

In 2007, after joining the WTO, Vietnam’s economy saw a boom. The State Bank of Vietnam (SBV) then projected a credit growth rate of 18-22 percent over 2006. In late 2007, the central bank reported a 34 percent growth rate, higher than the goal. 

As the CPI was too high, at 12.6 percent, Director of the Financial and Monetary Department under the Ministry of Planning and Investment (MPI) Le Quoc Ly had doubts about the credit growth rate and he re-calculated the figure.

Ly then reported to the then Minister of Planning and Investment Nguyen Hong Phuc that the real credit growth rate in 2007 was 57.53 percent. And Phuc used the figure in the official report to the Government.

I relate this story to show how statistics are important in regulating the economy. Only when truly diagnosed will it be able to find suitable medicine to treat the disease. If high inflation is not treated in a timely way, this may cause immeasurable consequences.

In 2021, the average income of urbanites was VND5,388,000 a month, or $7.8 per day, while the income of people in rural areas was VND3,486,000, or $5 per day.

Tu Giang