By Minh Tam and Thanh Thuong - The Saigon Times Daily
HCMC – Worries over inflation have almost been wiped off given the negative consumer price index (CPI) for June, which for the first time in the past three years dropped 0.26% month-on-month. Experts quickly attributed the CPI fall to the weak purchasing power, which is menacing local production and may prompt stagnation.
It is believed that the supply-demand balance is getting worse, and the only way to help enterprises is to stimulate consumption alongside making access to soft loans easier for them, otherwise the economy can hardly develop.
Declining consumption
Speaking with the Daily, economist Vu Dinh Anh said the slowing index this month indicates the widening gap between rising supplies and decreasing demands at home. Consumers are tightening their purse strings, leading to an upsurge in inventories at local producers.
This imbalance will result in low inflation or even deflation, Anh noted, adding the Government’s target to pull down the inflation rate to one-digit territory will be within the reach. However, if remedial measures are not properly prescribed, the country may be at risk of suffering high inflation again in the near future, he said.
“The previous occurrences of high inflation in 2010 and 2011 were the evidence for such a situation,” Anh remarked.
Anh recalled inflation dipped to one-digit level in 2009 but it then shot higher given the Government’s policies to loosen public investment in 2010 and 2011.
Meanwhile, Vu Thanh Tu Anh, research director of the Fulbright Economics Teaching Program, said it was still too soon to conclude whether deflation would happen or not. “Only when the CPI slips to under 0% for two consecutive quarters could we know the answer,” Anh said.
According to Anh, the scale of the economy has narrowed down considerably, with the number of companies going bust or dissolving going up over the months. In fact, troubled enterprises are still unable to benefit from preferential lending programs launched by the Government and lowered lending rates set by the central bank.
Consumption stimulus needed
According to local companies, the falling CPI in June means lower costs of a number of input materials have partly helped cut the production cost. But ongoing stagnant business performance at manufacturers has forced them to launch many promotions to stimulate poor purchasing power from consumers.
Le Thi Thanh Lam, deputy general director of Saigon Food, told the Daily that the sales of her company in May inched up year-on-year but the consumed volume shrank. She explained that sales were higher due to price increases in 2011. The number of consumed products at every store plummeted by 15-20%, Lam clarified.
To woo customers, Lam’s business has had to invest heavily in promotions and research activities for new products and packages or outlets.
Meanwhile, deputy general director Phan Van Thien of Bibica JSC pointed out the biggest problem of his enterprise was to deal with inventories. Bibica has spent 20% more on sales programs but the results remained low, Thien stressed.