Low CPI increases will continue in Q3

Supported by many good factors, the inflation rate in 2010 is forecast to be curbed at single digit levels, estimated at 8-8.5 percent.

Participants at the conference on reviewing the domestic market in the first half of 2010, held in Vinh Phuc province on June 29, all agreed that, after witnessing low increases in the three months of the second quarter, the consumer price index (CPI) will remain stable in the short-term.

“In July, as prices on nearly all kinds of goods tended to be stable or fluctuate slightly, the CPI is expected to see a slight increase in July in comparison with June, an increase of 0.2-0.3 percent,” the draft report of the Taskforce on the Domestic Market Management reads.

However, in long term, the Taskforce on the Domestic Market Management has warned that high inflation may return if Vietnam does not have reasonable policies.

Forecasting about goods prices in the second half of 2010, the taskforce believes that prices will be influenced by those in the world market and the policies that will be applied.

The taskforce believes that prices for many kinds of materials in the world will only fluctuate slightly. A representative from the General Statistics Office (GSO) agrees, citing prices on steel, petroleum, animal feed, fertilizer and medicine.

The GSO official also noted that imports of materials to serve domestic production may increase in the last months of 2010, putting pressure on the trade deficit. Meanwhile, the yuan will appreciate and make China’s imports more expensive.

In the domestic market, consumption and investment have recovered. Since 2010 is a year of many big festivals and anniversaries, many big construction works have kicked off and the demand may rise in the second half of the year.

Budget overspending has reached 28 trillion dong, while the expected level for the whole year 2010 is 119.7 trillion dong.

Companies can be sure that input costs will stabilize since coal and electricity prices will not increase in the second half of the year. However, petroleum products and some other kinds of goods will follow market mechanisms in the last months of 2010.

The Monetary Policy Department under the State Bank of Vietnam has predicted that, in 2010, the total money supply would increase by 20-23 percent, the credit growth rate would be 24-26 percent and the capital mobilization growth rate would be 23-24 percent. The figures in the first half of the year are 9.6 percent, 10.52 percent and 10.82 percent, respectively.

Regarding interest rates, the Department also noted that interest rates may drop in the next six months, but not by much since capital demand is still higher than the supply.

Meanwhile, the dong/dollar exchange rate is expected to be consistent. By June 2010, the Vietnam dong had depreciated by 2.8 percent against the dollar.

Forecasting economic performance for the last six months of the year, economists think that production and consumption will be satisfactory. They believe that CPI will slightly increase in the third quarter, very likely at a single digit level. Many other economists have agreed with the Monetary Policy Department’s scenario that inflation would be curbed at 8-8.5 percent.

Tags: Vietnam CPI, Vietnam economic, Vietnam economy