Inflation starts to fall from Dec

World Bank (WB) recently gave forecast that Vietnam’s inflation this year would be at 10.5 percent.

However, according to many domestic experts, because total consumer price index (CPI) during the first 11 months this year jumped up to 9.58 percent, the country’s inflation in 2010 would be at least 11 percent.

Economist Ngo Tri Long, former deputy head of the Market and Price Research Institute, predicted CPI in December would stand at 1.5 percent. If including this figure plus the inflation in Jan-November at 9.58 percent, this year’s inflation would also climbs up to 11.08 percent, higher than WB’s forecast.

Long said, “In this month, the government has implemented many synchronic measures to curb inflation. But there are still many factors affecting the domestic prices that the authorities are hard to intervene in such as world prices increase while Vietnam still has to imports many raw materials”.

In fact, the complex price changes in September, October and November were caused not by the balance between supply and demand, but the main reason was due to the world price increased. Besides, natural disasters and complex diseases affected the group of food and foodstuff, the world gold price was continually skyrocketing, pushing up the domestic price and affecting the price of foreign currency. Of course, the increase in prices was also caused by several domestic factors such as speculation and hoarding for goods to corner the market. But in December, the domestic elements have almost been resolved and remained stable, but the CPI this month high or low will depend on the world prices, so it should not be able to say the inflation will stop at 10.5 percent or not”.

Le Tham Duong, head of the business administration department of HCM City University of Banking, said inflation in 2010 could be over 10.5 percent. For in December, the situation of high prices persists, most items have been raised to a new price benchmark. Interest rates at banks witnessed hot rises, many enterprises began restructuring their production portfolio and limited of some types of products due to too high interest rates. This will lead to the supply of goods is narrowed, and prices have opportunities to increases. But this month, the government has made strict and drastic measures to stabilise the prices.

“So according to me, the CPI in December will be still higher than the average of other months, but not as high as in November. In addition, psychological factor also influence the price rise. For example, the prices of gold and US dollar increase, the price of vegetables will also increase. But in December, the price of gold and US dollar was cooler and the FX rate is being strictly controlled. So the CPI in December is expected at 1.5 percent or lower” Duong said.

In 2008, facing the strong rise of inflation, the government had issued a series of strong measures to intervene in the economy. The State Bank of Vietnam (SBV) decided to increase the statutory reserve ratio (SRR), and key rate, rediscount interest rate and issue compulsory bonds. Besides, the government had also suspended many public investment projects and investment projects of state enterprises. This was a “bitter medicine” but had positive effects in curbing the explosion of inflation in that year.

Currently, the most radical measure to cure the disease of inflation in Vietnam which the government has promptly implemented in December is to tighten the monetary policy. Therefore, the CPI in December could be reduced significantly versus November. And in the long term, the most strategic solution is still restructuring the economy to improve the efficiency in investments. – Vietbiz24

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