Moderate price hikes for local goods and services have captured public attention recently. The General Statistics Office (GSO) announced on Monday that the country’s consumer price index (CPI) in February rose 0.55% over January – the lowest rate in a decade, while that of January picked up 0.69% over the previous month.

The fact that the CPI increased very moderately, especially in the large cities of Hanoi and Ho Chi Minh during Tet—Vietnam’s most important public holiday—may reflect that demand for locally generated goods and services is still weak.

Earlier, Hanoi and HCMC announced the February CPI rise at 0.49% and 0.24% respectively, a record low of the last decade since no price escalations occurred in the period.

In addition, a common phenomenon in both cities is that only food and catering services saw a notable increase, while the remaining groups saw very modest increases during January 2014. The prices of housing, electricity, water, and construction materials also decreased by 0.5% from the previous month. In previous years, the index usually surged during the first two months and peaked in February because of Tet.

In the CPI basket, while food and catering services increased 1.15% due to the normal price hike of food and catering services during the holiday, the remaining 10 groups increased less than 1%.

Worrisome signs?

Many local experts have expressed worries over the fact that although the Lunar New Year holiday is often considered a time of celebration with countless springtime festivals held nationwide, the increase in the CPI in  Vietnam’s two biggest cities hit the lowest rates recorded in the past 10 years.

Many said this may signal a bleak prospect for the local economy, as people are tightening their wallets due to increasingly dwindling incomes.

The modest increase in the CPI in both cities was predictable, given the fact that the CPI last month increased very slightly, at 0.7% and 0.4% respectively. January is usually the time people begin to shop for Tet.

With the latest CPI data, the CPI in February 2014 increased by 4.65% compared with the same period last year, while the CPI in February 2013 and 2012 increased 7.02% and 16.44% compared with the same period in the previous two years.

The same rates in Hanoi are 5.93%, 6.12%, and 15.64%, respectively. Meanwhile, the corresponding rates in HCMC are 4.37%, 3.28%, and 15.4%.

Obviously, local laborers had to spend more carefully given the fact that many businesses previously announced they would cut wages, Tet bonuses, and even failed to pay the wages they owed their workers from 2013.  As they recognize their monthly income is shrinking, saving money is still a top priority of Vietnamese people even in 2014.

This, in turn, helps to raise the price of local businesses’ unsold inventory .

According to the Ministry of Planning and Investment, as of February 14, credit growth saw a negative rate of 1.21% compared to the end of 2013 and 1.06% to the same period in 2013 despite the government’s efforts in promoting lending activities.

Sluggish growth of credit is seen as a sign that the credit line is clogged once again, seriously threatening the resilience of the local business community. In 2013, the total number of closed enterprises and suspended business activities was 60,737, an increase of 12% over the previous year.

According to the Ministry of Industry and Trade, inventories in February remained high.

Accordingly, as of February 1, inventory increased 12.7% year on year, while inventory indices in the same period in 2013 and 2012 were up 9.7% and 21.5% respectively.