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Prices likely to climb another 2 percent in May

Vietnam’s inflation is expected to ease to 1.8-2 percent in May following April’s one-month surge of nearly 4 percent, says a domestic market management team.

April’s consumer price index (CPI) rose by 3.32 percent over March, the highest rate of increase since May 2008. April’s figures pushed national inflation in the first four months of this year to 9.64 percent, outpacing targets set for the entire year.

Inflation will continue to be high for the near future due to impacts of economic and policy factors on the domestic economy, including the deregulation of electricity rates (slated to begin fluctuating under free market rules in June) and a minimum wage increase in May, said former State Bank of Vietnam Governor Cao Sy Kiem.

The current bout of high inflation was ignited when the Vietnam dong was devalued by 9.3 percent against the US dollar in February, followed by hikes in petrol costs and electricity rates in March. Inflation was also spreading globally, especially in Asia, exerting great pressure on the Vietnamese economy.

The Ministry of Industry and Trade has vowed, however, to hold the line on the prices of food staples, saying that the domestic rice price would not increase because there are supplies in the south and plans to add to the stockpiles. The price of pork is also not expected to rise further because it is already high, the ministry said.

Both Vietnam Banking Association general secretary Duong Thu Huong and National Advisory Council for Financial and Monetary Policies member Tran Hoang Ngan have said that the Government’s timely adoption of Resolution 11 has prevented inflation from getting worse. They emphasised the consistently tighter monetary policies to avoid a resurgence of the pressures that could result in double-digit inflation at the end of the year.

“If the Government resolves to pursue tighter monetary policies between now and the third quarter, inflation could begin to ease by the end of the third quarter or early in the fourth,” said Fulbright Economics Teaching Programme director Vu Thanh Tu Anh.

The Asian Development Bank (ADB) and the British Barclays Bank share a gloomier view of Vietnam economy, however, saying that inflation over the next several months could continue to increase beyond the current prices which are 13 to 14 percent higher than in the same period last year.

The ADB forecast that Vietnam’s inflation could stand at over 13 percent by year’s end while Barclays put the figure closer to 15 percent.

Short-term measures, including exchange rate adjustments, reform of the foreign exchange market and a cut in public expenditures were the beginning of the effort to bring inflation under control, stressing the need for consistent long-term measures, including economic restructuring.

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