Inflation feared to return later in 2012

Sep 13, 2012. In the past few months, inflation has gone down, but this does not mean that inflation will be low in all of 2012. Inflation will certainly increase again; if not at the end of this year, it will be in early 2013 because of many reasons.

Inflation will pick up in the second half of the year because according to yearly rules, prices of goods will increase in the third and fourth quarters. That is not all; the policy of pumping more money into the market through public investment has been made, and money has been quickly released by banks to ensure credit growth for the year.

Since July 1, the average price of electric power has increased by 5%. Early this year, Finance Minister Vuong Dinh Hue said that if the electricity price grew by 5%, its direct and indirect influence on CPI would be approximately 0.36%. Generally, an increase in electricity prices will begin to affect household expenditure after about one or two months, which also means it will impact on CPI from August.

Within only one month after the price of electricity went up by 5%, the prices of both gasoline and cooking gas have been adjusted up with a drastic rise of VND3,050 per liter after being increased four times.

Electricity, fuels and cooking gas are essential items, so their price rises have sent prices of many other goods soaring as a result.

Looking forward, even the level of CPI without exceeding 7% for the whole year 2012 is still high.

In the report on Vietnam’s economic situation in the first seven months of the year and forecasts for all of 2012, the National Financial Supervisory Commission said that CPI and inflation might increase again in the coming months or years if monetary easing was excessive.

And money should not be pumped too much through the public investment channel because more public investments are synonymous with more public debts (domestic and foreign debts).

However, the Government has increased public investments after a hiatus. In addition to the pouring of about VND21,000 billion per month from now to the end of this year, the Government has been on account of VND30,000 billion in fiscal 2013. Therefore, there will be VND22,000-23,000 billion for public investments every month until the end of the year.

The State Bank of Vietnam has also allowed the increasing expenditure of ten credit organizations with a healthy financial position whose credit growth has reached over 50% of the central bank’s targets since the beginning of the year. Instead of 17%, 15%, 13%, and 8% per year for four groups of banks stated early this year, the new growth targets will increase by 27% in some banks. So, banks will be allowed to lend more.

Le Dang Doanh said that we should not stimulate the economy. “Loosening fiscal and monetary policy at the moment will lead to a return of inflation,” he said. He added that the Government should draw experiences from the past when Vietnam was entrapped in a repeated cycle of inflation and recession.

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