Low consumption dragging inflation down: experts

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The easing of inflation in recent months was mainly due to very slow consumption, which has caused the economy to stay sluggish, financial experts said at a conference Wednesday.

There were favorable conditions in both international and local markets for consumer prices to fall, but low domestic demand was the main reason, news website VnExpress cited the experts as saying.

They forecast inflation will only be between 6 and 7 percent this year, after prices fell 0.26 in June percent from the previous month.

Economist Nguyen Minh Phong said now that retail and property markets have declined, the economy will no longer be able to absorb a large amount of money supply from the central bank.

He said more than VND300 trillion has been injected into the economy, mostly into the banking system, but businesses are still reluctant to borrow.

Vu Vinh Phu, chairman of the Hanoi Supermarkets Association, said consumers, especially retirees, have cut back on spending sharply.

"So it's easy to see why the inventory level of local firms has reached 30 percent," he said.

The central bank has cut interest rates five times this year in order to boost economic growth. It has also ordered commercial lenders to lower rates and offer loans to strategic sectors.

Phong said while it's necessary to lower interest rates, the government should do it cautiously to avoid fueling inflation.

The International Monetary Fund said earlier this month that Vietnam's inflation can decline from an average of 18.7 percent in 2011 to 10.75 percent in 2012 as food prices stabilize and also due to base effects. It is projected to gradually decline to 5 percent by 2017 as macroeconomic conditions stabilize, and remain at that level through 2031.

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