The year's target of a 5 percent increase in the consumer price index (CPI) is feasible amid encouraging results for inflation and price controls in the first six months of 2015, Nhan Dan (People) online newspaper reported, adding that the CPI and inflation control should create momentum for GDP growth.

The CPI, an indicator of inflation, increased by 0.55 percent in June compared to December 2014, and 1 percent over the same period in 2014, according to the General Statistics Office (GSO).

But the figures marked the lowest June CPI since 2001, said Deputy Director of the Academy of Finance’s Institute of Economics and Finance Nguyen Duc Do. He noted that the rate of inflation in the past year has slowed noticeably and the economy is now relatively close to an inflation rate of 0 percent - far from the target of 5 percent.

Do said concerns about a low rate of inflation were raised in 2014 when inflation in December 2014 decreased by 1.84 percent over the same period in 2013, attributed to the sharp decline of petrol prices. However, in the past six months, inflation has been mainly driven by the higher prices of electricity, the exchange rate and health services, but not petrol prices.

According to the GSO, a 2 percent VND/USD exchange rate adjustment led to a CPI increase of 0.6 percent, and a 8.47 percent rise in electricity prices led to a 0.22 percent increase in the CPI. Do added that the six-month inflation rise was mainly fuelled by costs, but the low inflation pace in the past year was due to lower aggregate demand than aggregate supply.

He noted that since 2008, economic growth has always been lower than the potential of 6.5 percent, which means the increase in aggregate demand was lower than that of aggregate supply, pulling down inflation. The downward trend of inflation will stop when the economic growth rate increases to 6.5 percent or above.

Economist Ngo Tri Long said inflation over the past six months posted a 0.55 percent increase compared to December 2014, equivalent to nearly a tenth of the year's target - the lowest figure in the past 14 years. Thus, the year's target of less than a 5 percent increase in the CPI is achievable.

Long emphasised that low inflation will create positive impacts on socio-economic development, making investors and enterprises feel secure, creating favourable conditions for policy makers and managers to put forth and implement measures to remove barriers to production and business activities. But effective control of inflation must create a driving force for GDP growth, he added.

Long said GDP increased by 6.28 percent in the first six months of this year - a relatively high level for recent years - indicated economic recovery. It is expected that the GDP growth rate for the entire year will reach 6.2 percent. Despite the high growth rate, a number of economic factors have yet to be improved, requiring greater efforts from the Government including a high trade deficit, and a large number of bankrupt enterprises among others.

The Government set a target of reaching an annual GDP growth rate of 6.5 percent-7 percent in the 2016-2020 period to avoid deflation - but attaining this growth is a significant challenge. Do said the reduction of interest rates, particularly the lending rate, is one of the prerequisites for achieving this target.

In the 2012-2014 period, the State Bank was successful in lowering interest rates, reducing inflation and stabilising the exchange rate and the gold market, which was attributed to the flow of cash into the bonds market. Do noted that when the money flows into bonds, the pressure on the exchange rate will decrease, creating good opportunities for lowering interest rates and issuing government bonds, as well as increasing credit growth and allowing the easier settlement of non-performing loans. Thus, it is advisable to put money in bonds in the current context, Do said.

Meanwhile, Head of the State Bank of Vietnam's Banking Strategy Institute, Nguyen Thi Kim Thanh said monetary control should be at the top of the list, along with a balance between the supply and demand for goods, to maintain stable inflation. The facts show that the prices of commodities in the past six months were mainly driven by supply and demand.

In the remaining months of this year, credit growth will continue to increase along with expanded ownership limits and voting rights for foreign investors in listed enterprises, posing a challenge to the State Bank in controlling cash inflow and the exchange rate to curb inflation. Thanh also suggested strengthening the fight against goods smuggling and improving distribution channels of goods which otherwise may create negative impacts on price management policies.-VNA