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Experts say expect high inflation in 2010
The dong/dollar exchange rate increase, petrol price increases and tentative electricity price increases all have been cited by experts as the main reasons why they believe we can expect high inflation in 2010.
Head of the Price and Market Research Institute under the Ministry of Finance Nguyen Dinh Anh, in the interview given to Tien phong, said that it would be incredible if Vietnam can curb the inflation rate at seven percent in 2010 as decided by the National Assembly. The price increases of a range of raw materials for production industries will certainly lead to price increases of products and services.
The Hong Kong and Shanghai Banking Corporation (HSBC), in its latest briefing report, also said that all current factors are putting pressure on goods and service prices.
The consumer price index (CPI) in February 2010 increased by nearly 8.5 percent in comparison with the same period of the previous year. These are the highest level since mid 2008.
HSBC’s analysts say that the inflation rate of Vietnam will be relatively high in March as a result of price increases in food, transport and construction materials.
Therefore, the banking group believes that the State Bank of Vietnam would raise the basic interest rate to nine percent in the upcoming months from the current eight percent. The total four percent increase has been predicted for the whole year 2010.
HSBC thinks that the State Bank of Vietnam did not raise the basic interest rate before Tet because it feared low liquidity. However, the fear has been eased since, therefore, it is likely basic interest rates will rise again.
Cao Sy Kiem, former Governor of the State Bank of Vietnam, now Chairman of the Small and Medium Enterprises’ Association and Member of the Economics Committee of the National Assembly, has also warned about high inflation.
According to Kiem, there are four factors that are causing the inflation.
First, the high credit growth rate in 2009 of 37 percent, leading to a big money supply in circulation, will show an impact in the first and second quarters of 2010.
Second, the prices of many kinds of products are increasing in the world market as the result of the world’s economic recovery such as oil, steel, plastics and fertilizer.
Third, the prices of key raw materials for industrial production, such as petrol and electricity, are increasing
Fourth, many existing problems have not been settled, such as the budget deficit and high ICOR (Incremental Capital Output Ratio).
In 2009, in order to stimulate the national economy, it had to pump more money into circulation. However, the side effects are leading now to high inflation.
VietNamNet, TBKTVN, TT
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