Inflation likely in remaining months of 2010

Economists and managers forecasted the risks of re-inflation in the remaining months of this year and now it has become a reality.

Many notable events took place in the last week of October including the hot issue of escalating prices at the National Assembly’s 9th session, problems with production and business operations of domestic enterprises and negative consequences of recent historic floods in the central region.

In addition, according to the General Statistics of Office (GSO), the Consumer Price Index (CPI) saw a strong rise of 1.05 percent in October compared to September. Experts say with this high level, the CPI in the past 10 months reached 7.58 percent (nearly the 8 percent set by the government for the entire year).

In theory, to curb the inflation rate at 8 percent this year, the CPI should be allowed to increase by 0.21 percent in the two remaining months. This figure means that combating inflation over 8 percent is very difficult and not feasible in the remaining months of 2010.

Economic experts attributed the increase to the foreign exchange rate, rising prices in the world markets and adjustment of prices for raw input materials such as iron, steel and gas, which will have an adverse impact on prices of goods in the remaining months of the year.

The increase in the foreign exchange rate for a series of essential imported goods will raise input costs for production and continue to drive the prices of goods up.

In October, there was also an increase in prices for 300 types of goods including milk (ranging from 8 to 10 percent), domestic confectionaries and cooking oil (2-3 percent), sugar (10 percent), imported confectionaries (5-7 percent), according to the Vietnam Supermarket Association.

After October, both managers and consumers will feel the heat of potential escalating prices for many goods in the next months. This is expected to become worse due to fluctuations in the domestic gold market and the rise of the US dollar in recent weeks.

High inflation in October and prediction of rising prices in the remaining months of this year indicate that monetary policies will continue to be tightened. Banking and economic experts say that banks will find it difficult to reduce interest rates while inflation rate continues to rise.

Relevant agencies, ministries and businesses also find it themselves difficult to curb inflation if interest rates decrease. If interest rates remain high, businesses will also have to face high input costs for production. As a result, the price of goods will increase, especially in the remaining months of this year while the consumer demands are predicted to be great. This poses a challenge to stabilize prices of goods in the local market.

In general, economic experts said that inflation cannot be curbed only by stabilizing prices in the market. It is necessary to solve thorny problems in the macro-economy such as budget overspending, high import surplus, the trade deficit, a reduction in foreign currency reserves, high interest rates on loans, and lack of synchronized policies. – VOV

Tags: Vietnam 2010 inflation, Vietnam economic, Vietnam economy, Vietnam inflation