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CPI method of calculation is correct: economist

“Someone told me they had a feeling that the CPI is not correct. I asked them on what grounds. Scientifically, that cannot be proven,” said economist Vo Tri Thanh.
Economist Vo Tri Thanh

Vietnam’s reported consumer price index (CPI) is controversially low in the context of 40-year high inflation rates around the world. Can you comment about this?

Inflation is the change in consumer goods index, which can increase or decrease. The consumer goods index does not apply to all consumer goods. The basket of goods, comprised of 300 or 500 items in the past and now 600-700 items, reflects the products and services people use. 

The question is if the basket of goods can truly reflect the situation. The answer is relatively true.

There is nothing wrong with the statistical method and since 1990s, Vietnam has been applying international standards and technologies. 

Another important thing is that samples need to be taken at tens of thousands of points. I have to say this to prove that the accuracy of statistics is just relative. It is unreasonable to require absolute accuracy.

But many scientists and economists have expressed their doubts about the reported low CPI?

Some people told me that they feel the CPI is not correct. Then I asked them what are their grounds for concluding that it is wrong. It can’t be scientifically proven to be wrong. There could be a big gap between accurate measurement and feelings. 

So from a statistical perspective, which indicators do you think are not favorable for growth today?

There is an indicator called Producer Price Index (PPI), which is designed to reflect average changes in the prices of all goods and services of  producers at all stages of processing. This year’s PPI is less favorable for Vietnam. This year's import price index increased more than the export price index.

What is 'good' inflation?

World history shows that inflation is mostly positive and rarely negative. The good or bad inflation relates to growth. For developed countries, inflation of around 2 percent is okay. For developing countries, inflation rates of 4-7 percent are acceptable. If the inflation rate is higher, this will have a bad impact on growth.

What do you think about commitments to keep macroeconomic stability and control inflation?

Amid the context in the world’s growth decline (some analysts have predicted a recession), a growth rate of 6-7 percent would be very good. Vietnam can keep relative macro stability, which is a good thing compared with other regional countries.

So, the targeted 14 percent credit growth rate for 2022 is good. With the credit growth rate, Vietnam won’t have to tighten monetary policy. In other countries, the credit has grown by 14 percent, but they have had problems in keeping macro stability.

We have growth rates of 6-7 percent and we have macro stability. What more do you want? I believe that no one wants a high growth rate of 8 percent which is an exchange for higher credit growth rate and higher inflation.

We must keep the overall balance because we learned the lesson from hot economic growth, high credit growth and recession caused by macro disruption a decade ago.

Why are lending interest rates so high in the context of low inflation?

This is pressure. The long-term capital mobilization is over 7 percent and the lending interest rates in reality have moved up compared with deposit interest rates. Depositors won’t accept interest rate cuts. Meanwhile, banks’ profits in the last six months of the year are expected to decrease.

The problem is that commercial banks have used up their credit growth limits too rapidly. The growth rate has reached 9.35 percent compared with late 2021. 

In the last two years of the pandemic, fiscal policy has been too weak. We should have relied more on fiscal policy to obtain two things. First, it is necessary to quickly disburse money for public investment projects to help quickly recover the economy. Second, if relying on fiscal policy, monetary policy will become more flexible. 

The International Monetary Fund (IMF) and the World Bank (WB) have predicted that Vietnam’s inflation rate would be 4 percent this year. What do you say about this figure?

I hope that inflation will reach its peak in August and September and then decrease gradually. But this is a hope as it’s unclear when the Russia-Ukraine conflict will stop.

The targeted credit growth rate of 14 percent this year is not low, but inflation depends on cash flow as well. When the economy recovers, cash flow will be faster. 

Lan Anh

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