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The black-and-white television set included in the original CPI formula 15 years ago has been removed from the General Statistical Office's CPI formula for 2009-2014 and replaced by an LCD television. Such a change reflects shifting Vietnamese consumption patterns and helps to make the CPI a more accurate yardstick of commodity prices.

"We no longer consider obsolete products. The addition of 78 high-demand commodities and the replacement of several other products in the basket of goods used for CPI calculation are appropriate. However, the CPI will not necessarily rise because, while some items have become more expensive, other commodities that have improved in quality are actually more affordable," Tran Thi Hang, head of the General Statistical Office's trade, services and prices department, says. "For instance, a 14-inch black-and-white television used to cost several months of a civil servant's wages. At present, an LCD television set may be worth merely one month's pay."

Besides, the weight attached to each commodity has been recalculated. "The previous CPI formula depended on the consumption patterns identified five years ago, when the share of food and foodstuffs in overall expenditures was higher. At present, while food and foodstuffs still make up the lion's share, spending on telecom, post, education and transport has soared, so the latter products and services have increased weights in the new CPI formula," says Hang.

The CPI in January was 1.36 percent according to the new formula and 1.5 percent under the old one. This is entirely justifiable, say Vu Dinh Anh, vice rector of the Price and Market Research Institute, and Hang. However, Hang adds that since 1.36 percent was a month-on-month increase, and the CPI in December 2009 was already 1.38 percent, caution is necessary.

Le Xuan Nghia, vice chair of the National Financial Supervision Commission, says that inflation is the biggest macroeconomic threat. He believes that more stringent control on imports, which are included in the new CPI formula, is vital. Nguyen Tien Thoa, head of the Price Control Department, shares this concern, contending that the hikes in minimum wages and social security expenditures will enhance the purchasing power of a certain segment of the population. Rising consumption and falling savings will probably fuel inflation.

Vu Viet Ngoan, vice chair of the National Assembly's Economic Committee, says that better CPI forecasts will help enterprises develop more appropriate business plans as there is a close relationship between CPI and interest rates. "More accurate inflation forecasts will help businesses better assess interest rate movements," says Ngoan.

The new CPI formula partly attests to changes in Vietnamese consumption patterns. Notably, these changes have exerted tremendous impacts on macroeconomic indicators, as well as Vietnam's living standards.



Source: http://www.intellasia.net/news/articles/economy/111288704.shtml