In 2009, Vietnam was successful in keeping the inflation rate under control. However, several Vietnamese economic experts expressed concern over the return of high inflation rates, therefore, keeping the inflation rate at 7 percent was an uphill task.

Price hikes

There remains a high risk of price hikes in the domestic and global markets. According to reputable global financial and monetary organisations, the world economy will bounce back in 2010, driving up prices. Many countries have decided to continue maintaining economic stimulus packages and pump more money into circulation, causing high inflation.

The Head of the Price Control Department under the Ministry of Finance, Nguyen Tien Thoa has attributed price rises in 2010 to an increase in the minimum salary for State employees, pensions for retired people and those paid by the State plus improvements to social welfare policies and poverty reduction programmes.  In addition, the continued use of a market price roadmap for some commodities and services, including the price of electricity, coal and clean water will send the consumer price index soaring. Natural disasters and epidemics are also likely to affect supply-demand and market prices. The impact of the rising inflow of money into circulation due to the loosened monetary policy will probably lead to high inflation. However, the Vietnamese Government effectively controlled the rising inflation rates in late 2009 by taking a score of measures to tighten up the monetary policy and control the flow of money in the market.

Will the inflation rate be kept at 7 percent?

Vu Dinh Anh, Deputy Head of the Institute for Scientific Research, Market and Price (ISRMP) says that keeping the inflation rate at 7 percent will depend on the Government’s policies. The trade and State Budget deficit, a high ICOR, Government and foreign debts, and unstable payments from the financial and banking system are putting pressure on interest and exchange rates. Mr Anh says that these issues affect not only the financial and monetary market but also everyday goods and services. In case if the market management policies paid dividends and market prices remained stable in 2010 the CPI would be kept in check at the one-digit level. If one of these conditions was not met the CPI could reach between 12-15 percent.

Nguyen Tien Thoa says that to keep the inflation rate at 7 percent in 2010 it is necessary to prevent unreasonable prices rising, despite fluctuations in the world market or a “price freeze” on the domestic market. The Government should control the interest rates in line with inflation forecasts based on capital supply and demand and closely control the growth of general payments and outstanding loans to a maximum of 25 percent.

Pham Minh Thuy, head of the Market Price Forecast and Analysis Department under the ISRMP says that to keep the inflation rate at a reasonable level, the State must stabilise the macro-economy and balance the State budget and spending, credit, international payments and contain inflation. Setting a high growth target will lead to more investment but with less effect (this means a higher ICOR), lowering economic competitiveness and lead to the economy developing unsustainably. The Government should closely control monopolies to ensure economic efficiency and devise measures to manage the distribution network (especially for essential products such as rice, cement and steel) to prevent speculation and price hikes.

Mr Thuy says that if the public can stick to the Government’s measures, the CPI in December 2010 will have increased by only 10 percent over the same period last year.