Inflation threat lingers on the back of petrol price hike

Inflation threats loomed ever larger following yesterday’s petrol price hike.

By the end of yesterday, the ministries of Finance and Industry and Commerce have approved to increase the price of petrol by 10 per cent or VND2,000/litre and 15.3 per cent or VND2,800/litre to diesel oil, effective from 10.00pm on March 29.

Hiep Ngo, senior analyst from Viet Capital Securities Joint Stock Company, said that the economy would grow slower year-on-year and the month-on-month consumer price index (CPI) would cool off in April due to seasonal effects.

“However, we are still concerned about inflation as the recent hike in petrol and electricity prices will continue to have impact in the coming months. In addition, the adjustment of minimum wage and the lift in price control could put more pressure on the country’s escalating inflation,” said Ngo.

This surprise hike came after 18-24 per cent fuel price hike in late February and 15.3 per cent hike in power price effective from March 1.

Prakriti Sofat, a Barclays Capital economist, estimated that fuel price hike in February alone may add 1.5 per cent to inflation, while 15.3 per cent hike in power prices may add 0.4-0.5 per cent to inflation.

Headline CPI growth accelerated to 13.9 per cent year-on-year in March from 12.3 per cent in the previous month. Seasonally adjusted data show a 2 per cent month-on-month increase in March, faster than the 1 per cent rise in February.

HSBC economist Sherman Chan said that the notable acceleration in inflation for March was hardly a surprise, given the double-digit increases in electricity and fuel prices imposed by the authorities.

“The monetary tightening measures have gained traction surprisingly quickly, but we expect activity to start accelerating again into the second quarter. In recent years, economic activity tended to dip in the first quarter, only to accelerate thereafter. That said, more needs to be done to address rising inflation pressures and rapid credit growth,” said Chan.

Chan added that the government may announce a few more tightening moves in the coming months, including a couple of interest rate hikes and other administrative measures, possibly with regards to bank lending which should help to provide a further dampening impact and bring the inflation reading down towards single digits in the fourth quarter.

“Despite this, we remain confident in our full-year growth forecast of 6.8 per cent, the same pace of expansion as in 2010,” said Chan – VIR

Tags: Vietnam Petrol prices