Vietnam - Bell rung as CPI rise anticipated

The return of a high inflation rate, represented in the monthly CPI rise, has been predicted with three price hikes in petroleum products, and the increase in drugs-medical services in July, and educational services last month.

For gasoline, the CPI in August was under the influence of two increase, on July 20 and August 1, with a total increase of VND1,300 per liter, sending transport spiraling 1.07 percent.

In September, the CPI was affected by what happened in July, as well as two larger prices adjustment later.

Regarding drugs-medical services, the Ministry of Finance has recommended that local governments not increase prices simultaneously with high rates after 34 localities nationwide said they would hike prices.

In August, only 10 localities raised the prices of the service, resulting in an average 7.71 percent rise, contributing to a 0.4-0.5 percent rise in the August CPI rate.

Another factor in the inflation rise in September was the new school year starting late last month.

Dr. Nguyen Duc Thanh, Director of the Vietnam Centre for Economics and Policy Research (VEPR) of Hanoi University of Economics under Vietnam National University, said that this year's budget deficit is very high, while tax revenues are declining.

This situation has forced the Government to seek funding and the likely implementation of policies that may fuel inflation in the near future.

The adjustment of prices of essential commodities, including petroleum products and utilities, in accordance with a market price schedule, as in the past, has illustrated this trend.

According to Thanh, if the CPI increases up to 2 percent in a month, the problem will become more serious in the next 1-2 quarters.

Economic expert Luu Bich Ho said that the CPI target can still be achieved by year-end following the current inflation trend, but as inflation is building up, it may flare stronger in 2013.

According to economic expert Vu Dinh Anh, this year’s inflation scenario may repeat follow the same script as 2010.

After being triggered in September 2010, the 2010 CPI jumped 11.75 percent, almost twice as high as the increase of 6.52 percent in 2009.

The risk for 2012 has gradually grown as fiscal and monetary policies have showed signs of easing through increased expenditure, advancement of the following year's budget for public projects, and the removal of the key interest rate to spur credit growth.

Besides, the prices of electricity and gasoline prices remain on upward tendencies, he added.

The National Financial Supervisory Commission (NFSC) said that if the average inflation for the last four months of the year exceeds 1 percent, the average year-on-year inflation in the period will be in the double-digits.

This trend will have a negative impact on inflation in 2013, said the NFSC.

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