Vietnam's Inflation

Topics: Monetary policy, Macroeconomics, Inflation Pages: 2 (462 words) Published: May 31, 2011
Vietnam faces more price hikes despite inflation woes
Vietnam's government is set to raise electricity prices by 15% on Tuesday, at a time when the population is already struggling with a soaring cost of living. Last week the Vietnamese government also raised the retail prices of oil products by as much as 24%. In February, inflation hit a two-year high of 12.31%.

Analysts say despite the government's measures to tighten monetary policy, price pressures are likely to continue. "The increases in energy, electricity and petroleum indicate that we are going to see inflation get a little worse despite the shift in government policy," said Christian de Guzman of Moody's Investor Group. Overheating

For years the Vietnamese government has kept a loose interest rate policy and subsidized lending in order to boost growth. The government expects the economy to expand as much as 7.5%, up from 6.8% in 2010. But the cost of that rapid pace is that the economy has started to show signs of overheating. Credit rating agencies cut the country's sovereign-credit rating last year. Inflation fears have also caused a sell-off in Vietnamese markets. Vietnam's benchmark stock index has slid 6.7% in the past year. "The Vietnamese government was focused on growth at all costs," said Mr de Guzman. "By the middle of last year they had already reached their inflation target but then they continued to pursue other macroeconomic policy targets like credit growth and gross domestic product growth," he said. Fighting inflation

But since the beginning of this year, the government seems to have shifted its policies towards stabilizing prices. Last week the Vietnamese government announced a set of measures to curb inflation. Electricity prices have been raised in an effort to reduce budget spending The central bank recently raised the cost of borrowing.

It increased the benchmark refinance rate by 2 percentage points from 9% to 11%. The government has also vowed to reduce government debt.
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