Vietnam inflation nears 20%–official data

HANOI—Vietnamese inflation will reach almost 20 percent year on year in May, official estimates said Tuesday, adding to the pressure on consumers facing some of the steepest price rises in the world.

The consumer price index is expected to rise 19.78 percent this month compared with May last year, the General Statistics Office said.

Inflation has increased every month since August of last year, but is still below a recent peak of 28.3 percent recorded in August 2008 as well as the triple-digit figures seen in the 1980s.

The communist country has one of the top five inflation rates in the world, and poverty will increase as a result, the United Nations in Vietnam said earlier this month.

Food prices are a key driver of the price increases.

The government, long focused on economic growth, now says fighting inflation is its top priority.

It has tightened monetary policy and set a series of targets to help stabilize an economy facing challenges including a struggling currency and a trade deficit.

Among its goals, the government wants commercial banks to keep growth in credit, or loans, to below 20 percent this year. It also said public investment should be reduced.

“The suite of policies they’re undertaking is very encouraging,” said Vishnu Varathan, Asia economist at Capital Economics consultancy in Singapore.

But he said inflation will not peak until the third quarter, and further hikes of key interest rates would not be surprising.

“I think Vietnam has not established beyond doubt that it is well on course to establish macro stability,” Varathan said.

Le Dang Doanh, a lecturer at the Economic College of Hanoi, said inflation has reached a worrying level that is causing many difficulties for small and medium-sized businesses.

Doanh said the government should re-examine the way it is implementing its inflation-fighting measures.

“They need to be really more serious and effective. The efforts have not been sufficient,” he said.

The authorities, who have set a full-year inflation target of seven percent, began taking firm action in February to tackle the trade deficit with a 9.3 percent devaluation of the dong.

But that led to higher imported fuel costs, which in turn pushed up the price at neighborhood petrol stations by 18 percent.

The government blamed rising global oil prices for another 10 percent increase in the price of fuel in late March, which added to the misery of consumers who had just been hit by a 15 percent rise in electricity prices.

Varathan said he believes the State Bank of Vietnam wants to avoid another currency devaluation, which would risk further pushing up import prices.

Nguyen Trung Minh, manager of a farm equipment company, said what particularly worries him “is that we don’t know when the prices will stop rising or be brought under control.”