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Price hikes may create domino effect

Update: August, 30/2012 - 09:05

Vu Vinh Phu, president of the Ha Noi Super Market Association, talked to Thoi bao Kinh doanh (Business Times) about the need to curb prices rises for petrol and electricity supplies.

How do you envision the impact of the recent price hike of petrol, electricity and clean water on the market?

The price of electricity increased by 5 per cent, and the price of petrol increased four times in a single month. Petrol and electricity are the two most important commodities as they enable society to function. Such price hikes will immediately have a domino effect on the prices of non-essential commodities, including transport fees. That's why decisions to increase or decrease prices of essential goods must be thoroughly considered.

At present consumption has been reduced by half compared with previous years. In addition, goods circulation (except the price element) is reported at just six per cent against the 11 or 12 per cent of previous years.

The domino effect of the high price of inputs on people's purchasing power will eventually lead to inventories piling up in factories. As a result, production has slowed down. More seriously, it causes instability in production and business. According to the General Statistics Office (GSO), the consumer price index (CPI) of August is 0.63 per cent – which may provoke the return of inflation.

Due to the hike in petrol prices, at present about 30 per cent of fishing boats in the country are anchored as fishermen complain that they can't make any profit from their fishing. Meanwhile, thousands of poultry farms are empty as the farmers don't have money to buy animal feed due to the price hikes. More seriously, if things keep going like this, by the end of this year, the imbalance between the money supply and goods supply will lead to inflation rearing up again. This is a warning many experts agree on.

Some people say that one of the causes of the market fluctuation is the poor distribution system. Do you agree?

In our country the price of many commodities does not truly reflect their production cost, as there are quite a few additional costs such as transportation of the commodities that are included in the price.

The first draft of a plan for a national distribution system was completed, but it was rejected by the government due to its poor quality. The weakest point of the draft is that it focuses mainly on distribution activities while neglecting to link these activities with production or establish a supply chain from producers to retailers.

Of course, the meaning of the phrase ‘distribution system' is very broad. It should cover any costs incurred in the long journey from the manufacturers to the buyers, in addition to production costs.

Some people have proposed that to solve the problem a Market Surveillence Commission should be established, affiliated with the National Assembly. The commission will be independent from the government. How do you respond to that suggestion?

The most important thing now is that existing authorised price controlling agencies must exercise their duties to the fullest. I don't think the establishment of the commission will help. In addition, the work ethic of the people involved in the job must also be strong.

If it is so how can we control the market?

There are thousands of essential commodities sold in the market, but we should focus on only basic commodities as food (rice, meat, cooking oil, salt, sugar, dairy products and others), energy (petrol, oil and gas, electricity and coal), clean water and medicine.

For the group of energy, it is important that the government is in a position to regulate prices and provide conditions for enterprises to participate in the market through fair competition.

In addition, the government should restructure the distribution system which is based on the model "from farm to folk" with the involvement of relevant agencies in a transparent manner. — VNS

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