VietNamNet Bridge - Economists believe that the low inflation rate is a concern for Vietnam, which has been affected by high inflation for many years.

The consumer price index (CPI) has increased by 0.58 percent only this year, the lowest in 14 years and far below the 5 percent cap set by the National Assembly.

Nguyen Duc Do from the Finance Academy said the oil price decrease was the major reason which forced the inflation rate down.

He believes that Vietnam’s 2015 inflation rate may be less than one percent by the end of the year, while the rates in December would be the same as November, about 0.1 or 0.2 percent.

Do said he can see the possibility of deflation coming near. In theory, the core inflation rate of 1.7 percent if compared with last year’s same period is considered ‘low’. It should be at about 2 percent – an average rate in the world. Any figures below the threshold would cause concern.

In the context of the underlying inflation rate of 1.7 percent and general inflation rate of less than one percent, Do has suggested slashing bank interest rates so as to raise the inflation rate to 2-3 percent.

At present, the average lending interest rate is 8 percent, which is high compared with the price increase of one percent.

Do went on to say that the total demand has recovered, but remains weak, while businesses are still meeting difficulties, attributing this to the high lending interest rates.

Huynh The Du from the Fulbright Economics Teaching Program (FETP) said the CPI shows society’s demand and if the demand is low, consumers do not spend money to buy goods. This means uncertainties exist in the national economy, and businesses would have to slash their selling prices and scale down production.

According to Du, there are two reasons behind the low inflation rate - the monetary policies have been tightened for a long time, while the input material prices remain low which has made production costs low and demand weak.

More importantly, the indices related to the public investment and banking sector restructuring show latent problems in the public debt and state budget.

A report released recently by VEPR, a well-known economics research institute, showed that the low inflation is not a problem for Vietnam only, but an issues for many emerging markets. It said that low inflation is the effect caused by price fluctuations of goods and energy worldwide.

VEPR, though admitting the low inflation, warned that the high money supply growth, which exceeds the nominal GDP growth, may bring risks in 2016.

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