Inflationary Pressure Continues to Build in Vietnam

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Feb. 14 – Data from the General Statistics Office of Vietnam has shown that inflation has accelerated from 6.81 percent in December up to 7.07 percent in January, while consumer prices gained 1.25 percent in January (the sharpest monthly gain in four months).

Furthermore, the price of health care and pharmaceuticals surged 55.6 percent, education jumped by 17.3 percent, clothing and footwear prices rose by 8.36 percent and housing and construction costs increased by 7.73 percent since last year.

Minister Vu Duc Dam attributed the rise in consumer prices to the increase of healthcare costs and a supply shortage and rising demand due to the Lunar New Year holiday. Furthermore, Minister Vu Duc Dam explained that the recent prolonged cold weather had damaged farmers’ harvests, which accordingly caused the rising price of commodities.

The central bank cut its refinancing rate for the sixth time last year in December as the economy expanded 5 percent in 2012, the smallest gain since 1999. However, Sanjay Kalra, the World Bank’s lead economist for Vietnam, is concerned about the policy easing, as Vietnam may face the risk of increased inflation rates in 2013.

“Good, sound macroeconomic policies are key to maintaining macroeconomic stability and low inflation, [and Vietnam’s] underlying inflationary pressures are still a little bit on the high side,” Kalra added.

Rising inflation rates may now limit the scope for further monetary stimulus policies and increased foreign investment.

“What I am most concerned about is high inflation will damage social resources and sap the confidence of investors and people,” said Luu Bich Ho, former head of the Development Strategy Institute under the Ministry of Planning and Investment.

Vietnam raised interest rates multiple times in 2011 to prevent the economy from overheating and to rein in double-digit inflation. However, as the economy began to cool monetary stimulus efforts were resumed last year.

Vietnam’s inflation rate for 2013 is now expected to fall somewhere between 8 and 10 percent. The Vietnamese government wants to keep inflation between 6.0-6.5 percent, which is lower than its 2013 target of 8 percent.

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