Monthly CPI growth remains indolent

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November’s consumer price index (CPI) edged up 0.39 per cent month-on-month, according to the General Statistics Office. This is the fourth straight month that CPI growth has come in at below 1 per cent. The figures for the index in October, September and August were 0.36, 0.82 and 0.93 per cent, respectively.

“Looking at these figures, I can say that inflation in Vietnam is turning back to its annual rule,” said Vu Dinh Anh, an economist at the Ministry of Finance’s Price and Market Institute.

With month-on-month CPI growth of just 0.39 per cent in November, the inflation rate till end of November was 17.50 per cent against December 2010 or 19.83 per cent against November 2010.

Normally, CPI declines or increases slightly from the second quarter to October and bounces back in two last months of the year because of rising demand in the market. But, Anh believed the CPI increase will be less than 1 per cent in the last month of the year. “The most likely scenario for December is that CPI will rise around 0.4 per cent,” he said.

Based on this prediction, Anh said inflation for the whole year would be around 18 per cent. Meanwhile, the World Bank last week made a 19 per cent prediction for Vietnam in 2011.
Analysts admit the low increases in CPI over the past months are chiefly the result of the government’s tightened monetary and fiscal policies which limit credit growth to 20 per cent and cap money supply growth at 16 per cent.

The government has slashed 10 per cent of non-wage recurrent spending while delaying or cutting nearly $4 billion of public investment this year. “Inflation peaked in August as a result of a combination of policy tightening, slower global and regional growth and moderating commodity prices,” said Paul Gruenwald, chief economist of ANZ Banking Group in Asia-Pacific.

Speaking to National Assembly deputies in Hanoi last week, State Bank Governor Nguyen Van Binh said credit growth this year could come in at only 15 per cent, much lower than the 20 per cent limit set by the government, and a sign that the central bank has been strictly implementing tightened monetary policy to fight inflation. “If credit growth had reached 20 per cent this year, inflation would be 25-26 per cent [not 18-19 per cent],” Binh said.

But analysts have warned this is not time for easing tightened policies. Gruenwald forecast inflation to remain in double digits until the second quarter of next year. And a recent Standard Chartered Bank report also had Vietnam’s inflation returning to single digits by late in the second quarter or early in the third quarter of 2012.

The WB predicted Vietnam’s inflation in 2012 would be around 10.5 per cent while the Vietnamese government targets the index at below 10 per cent. “Slowing inflation may not create room for monetary easing in the near term given renewed depreciation pressure on the dong,” said the Standard Chartered Bank report.

“The main risk is premature monetary policy loosening will result in higher credit and money growth and again fuel inflation,” said Gruenwald, adding that tighter monetary settings should be maintained until inflation momentum falls into the single digit range.