Falling prices fail to spark demand in Vietnam

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The consumer price index in Hanoi and Ho Chi Minh City declined for a third straight month in May, but failed to revive flagging demand, sparking fears of stagflation.

Tuoi Tre newspaper reported Wednesday said demand is low for many products despite price cuts that reflect a 0.16 percent drop in the CPI in Ho Chi Minh City and 0.22 percent in Hanoi.

In April prices in Ho Chi Minh City fell by 0.33 percent and in March by 0.29 percent. However, in the year-to-date prices nationwide are up 0.66 percent.

Analysts blamed this on the ongoing economic troubles, which have caused people to stop spending.

Nguyen Thanh Phung, a sales agent at a company in Ho Chi Minh City, is one consumer who has tightened her belt.

She has stopped eating out, carrying her lunch to work and returning home for dinner, and parties with friends only during weekends and at home.

"Many companies are in trouble and some have even shut down," Tuoi Tre quoted her as saying.

"I'm not sure if I'm going to keep my job, so I'd better spend less now."

The single woman used to spend more than half of her monthly income of VND16 million (US$768) on shopping and hanging out with friends at cafes and restaurants.

But she has become wary after her salary was cut by nearly 20 percent at the beginning of this year.

Bui Thu Phuong, owner of a clothing store in the city, has almost become a vegan to save money after profits halved this year to VND6 million a month.

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She used to eat beef and chicken regularly, but has switched to mainly with vegetables, tofu, and eggs.

Some food markets in the outskirts become vacant by noon as vendors do not want to waste their time waiting for customers who never come.

Thu, owner of a fruit shop at the Thu Duc wholesale market which opens from late at night, said she could sell 15 tons of mango every night a couple of years ago, but now has to wait until 10 a.m. to sell just eight tons.

"No one is buying," Thu said.

Economist Le Dang Doanh said inflation may be under control but a drop in the CPI for three consecutive months is a "worrying sign" for the economy.

It would make it harder for businesses to clear their piled up stocks, he said.

Official data shows that inventories at processing and manufacturing businesses increased by 13.1 percent year-on-year in May.

Pham Chi Cuong, chairman of the Vietnam Steel Association, said many member companies are operating at half capacity, while some have even suspended operations.

The industry has inventories of 300,000 tons of steel products and 460,000 tons of billets worth more than VND9 trillion ($432 million), he said.

Steel sales has dropped by at least 5 percent this year.

"There are no signs that demand will increase, let alone bounce back [to past levels]," the general director of a major steel company based in the south said.

Members of the Construction Materials Association have inventories of around VND3 trillion.

A recent study by the Ministry of Investment and Planning blamed tight monetary policies for the recession.

It said Vietnam has been topping the region in terms of inflation for many years with rates of more than 18 percent in 2011 and 6.8 percent last year compared to an average of around 3 percent in China, Indonesia, the Philippines, and Thailand.

The country has tried to contain inflation through tight money policies since 2011.

Besides Vietnam has one of the highest tax-to-GDP ratios in the world of 25-27 percent, according to the study.

Deputy Minister of Investment and Planning Cao Viet Sinh said it has reached a stage where businesses have no interest in continuing operations and people in consuming.

More companies are likely to disappear from the market given the current high interest rates of between 11 and 14 percent, he warned.

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