Inflation pressure and macroeconomic management

Keeping the inflation rate at seven percent this year is a goal set by the Vietnam National Assembly but this is no easy at all in the face of growing pressures from different factors.

The increase in petrol prices several days ago, for the second time since early 2010, has exerted an impact on goods and services markets. Meanwhile, water prices went up in late 2009 and electricity prices are scheduled to increase this March. People are understandably worried about a new phase of high inflation.

A planned 6.8 percent increase in electricity prices is expected to push up costs in industries by over VND4.500 trillion and raise the consumer price index (CPI) by 0.17-0.22 percent.

Inflation would be worsened by some other factors, including the effect of the more than VND17 trillion pumped into circulation in 2009 to assist businesses and people.

Similarly, the value of the Vietnam dong to the US dollar has decreased as a result of the high growth of credits and total means of payment over the past many years. This would lead to higher costs in importing goods, and make it possible for inflation to raise its ugly head.

Apart from such internal factors, there are new challenges from the outside, especially after the global economy started to see green shoots in late 2009. The soaring prices of imported raw materials and the openness of the Vietnamese economy would subsequently give rise to inflation.

From assessment of Asian economies, observers have shifted their worries from economic decline to inflation. Last January saw the CPI rising 3.1 percent in the Republic of Korea, 3.7 percent in Indonesia and over 4.1 percent in Thailand – a record high over the last 16 months.

For Vietnam, HSBC (Hong Kong and Shanghai Banking Corporation) predicted an inflation rate of 8 percent, while Standard Chartered Bank put the figure at about 10 percent.

In this context, stabilizing the macro-economy is a primary target for 2010 and a difficult task for management agencies, which will have to work out appropriate measures to analyse market situations and adjust goods prices.