“It will be a wonder if inflation can be held to 7%”

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VietStock FI English - 59 month(s) ago 1 readings

Asked about the outlook for inflation in 2010 just after price increases for electricity and petrol were announced, Dr. Nguyen Dinh Anh, Deputy Director of the Market and Price Research Institute, said the nation is now almost certain to exceed its seven percent target.

Right after the Tet holiday, on the first working day of the New Lunar Year, a petrol price increase of 590 dong per litre was announced. A day later came news of a 6.8 percent electricity price increase. Understandably, the public is apprehensive that these herald a new wave of price increases.

Dr. Nguyen Dinh Anh: The price adjustment is a must, because Vietnam is a market economy. However, when to adjust prices and how much to adjust them is an art.

Sellers now have the right to adjust petrol prices, and of course, their objective is quite different from the objective of the state management agencies. Businesses aim to make a profit; we can’t ask them to ‘sacrifice’ for the greater good of society.

Though the Ministry of Industry and Trade suggested a lesser increase, only 4.9 percent, I can’t say if the electricity price increase of 6.8 percent is overly high. We don’t yet have sufficient data. I’d really prefer that we defer making decisions which may impact inflation until after the end of March. By then, we’ll have a clearer view of economic pressures on the economy that will prevail in 2010. I mean we will be able to forecast the inflation rate for 2010, and make decisions on that basis.

The consumer price index (CPI) changes in January and February do not have much significance, because these were Tet months. Invariably the CPI decreases after Tet months. In principle, the indexes of post-Tet months will show more clearly the trend for the whole year.

Anh: To repeat, it is an economic law that consumer prices always decrease after the Tet holiday. However, there are signs that it will not decrease considerably this year, and this is really a worry. I am afraid that we will see inflation reach seven percent soon after the first half of the year. It will be a wonder if yearly inflation can be held to seven percent.

You see, the CPI increase for January and February could be 3.2 percent already. Prices also rise in August, September and October. Therefore, I do think that it will very difficult to cap inflation at seven percent in 2010, though that’s the target the National Assembly has approved.

Of particular importance, Vietnam still has a high trade deficit Meanwhile, the price of oil and other commodities tends to increase as the global economy recovers. I mean that Vietnam may have to ‘import inflation.’

Anh: Over the last year, the dong has lost 20 percent of its value. Thus all of our imports have become more expensive in Vietnam dong. In principle, the more we depreciate the dong, the more inflation will result.

Anh: There are many ways to curb inflation, but all have consequences. For example, tightening credit will create difficulties for enterprises, thus hindering growth.

If the Government realizes after the first quarter that the inflation threatens to increase sharply, it will have to take drastic measures such as raising interest rates, restricting loans and limiting public spending. . . .

“The Government has pledged to achieve macroeconomic stability this year. The policies that accompany its actions must also aim at creating confidence. If the people trust Government economic management, inflationary pressures will be eased.”

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