Goods, Services in Vietnam to Form New Price Level

 

According to the Vietnam Steel Association, the spending on electricity currently accounts for 10 percent of steel cost price. The electricity price rise of 6.8 percent will take an addition of VND12-15 billion more from the steel industry. Like the steel industry, the fertilizer chemical industry will also fall into the same situation in the wake of power price hike.

 

Mr Nguyen Gia Tuong, Deputy General Director in charge of production and sales of the Vietnam Chemical Group (Vinachem), complained that chemical enterprises are facing numerous difficulties as a number of input costs like electricity, coal and transportation surged on the back of gasoline price increase. As a result, fertiliser prices will be raised by 3-5 percent accordingly. For consumer goods producers such as garments, leather shoes and foods, the hike of electricity and gasoline prices will blunt their competitiveness amidst stronger penetration of imported goods, especially low-price Chinese goods.

 

Not only producers, trading companies are also suffering from growing gasoline and power prices. Mr Nguyen Thai Dung, Deputy General Director of Big C Thang Long Supermarket, said: Prior to the New Year which falls on mid-February, Big C received a lot of price rise notices from suppliers. Immediately when the petroleum price hike was applied on February 21, the supermarket got another series of notices with the similar content from suppliers which blamed higher costs on transportation. Recently, Vinamilk, the largest milk producer in the country, has raised prices of all milk products by 8 percent. In addition, beverage producers also informed of higher prices from March for the same reason. Mr Dung said: After preferential lending programme aimed at stabilising goods before and after Tet ends, commodity prices will increase by 5-10 percent compared with the current rates. Economist Le Dang Doanh said: Higher gasoline and electricity prices will push up prices of goods and services, fanning the pressure on inflation. This will add more pressure on curbing CPI rise in 2010.

To cope with increasing prices of coal, electricity, petrol and other commodities, the Ministry of Industry and Trade said the energy consumption can be reduced by renovating technologies and using energy-saving technologies. This is the best way to reduce prices.

 

Japan is one of the countries that have applied this method and have made success. For the steel industry, the current technology requires 600 kWh of electricity to produce a tonne of steel ingot but the rate is only 400-500 kWh of electricity if new technology is adopted. Mr Hoang Tho Xuan, Head of Domestic Market Department under the Ministry of Industry and Trade, said: To avoid domino effect of price hike, authorities need to strengthen inspection and control over the market, especially price increases from manufacturers, transporters and distributors. The electricity sector also needs to apply new solutions to reduce power leakage in the stages of distribution, transmission and consumption.

 

Dr Vu Dinh Anh, Deputy Director of Research Institute of Market Price under the Ministry of Finance, said: To curb inflation, in the short term, Vietnam needs to retain the encouragement to the state budget, expected to equal a quarter of GDP. In the long term, the nation needs to reduce the budget deficit and balance the budget. In addition, interest rate policy should also be applied flexibly in accordance with the market mechanism. Primary rate, rediscount rate and refinancing rate need flexibly adjusting in combination with open market operations to ensure capital for enterprises, prevent the risk of heating growth and control inflation. Therefore, to curb CPI growth in 2010, in addition to managing prices, balancing trade, strengthening public debt management and applying flexible monetary policies, etc. will be the key measures to realise achieve the goal of capping inflation at 7 percent in 2010 as expected by the National Assembly, the lawmaking body, said Mr Doanh.