Potential CPI rise is spooking investors

Vietnam’s General Statistics  Office (GSO) will this week release consumer price index (CPI) figures for November on the back of a 1.05 per cent increase in October against September or 7.58 per cent compared with December 2009.

“A CPI increase above 1 per cent on-month for November is [widely] expected,” said a Ho Chi Minh City Securities Corporation (HSC) analyst.  

Analysts with Bao Viet Securities Company (BVSC) said investors were waiting with bated breath. “In our view, a below 1 per cent rate [which is better than expected by most investors] will be good news for the market. If the rate is above 1 per cent, the market is likely to face more challenges,” said BVSC senior analyst Tran Thi Hai Yen.

The concern over high inflation in November was rooted from the soaring prices of essential foodstuffs and goods, while the prices of the non-food goods also climbed up. Initial statistics show that foodstuffs, which account for 40 per cent of the CPI basket, have soared 7-15 per cent this month due to natural calamities. 

“We forecast November’s CPI growth at around 1 per cent and the chance to keep inflation at single digits is likely,” Tri Viet Securities Company analysts said in a note to clients.

Vietnam earlier this year targeted a 7 per cent CPI increase for 2010, but later aimed at below two digits. Technical price evaluation models suggested that Vietnam’s CPI could rise between 0.9 and 1 per cent for November and some believe that this year’s inflation would be similar to 2007-2009.

Market analysts said investors’ sentiment over inflation concerns was overly pessimistic as policy-makers had realised the CPI’s threat and had tightened monetary policy by hiking the base rate to 9 per cent after keeping it at 8 per cent for 11 consecutive months.  The State Bank also shortened the open market operations (OMO) window to just seven days, from a previous 14 and 28 days, a move signalling the beginning of a tightening policy to prevent returning inflation. 

The government has additionally instructed the State Bank to use measures to quickly withdraw money from circulation to control inflation, indicating that policymakers had experience in controlling price fevers.

The Ministry of Planning and Investment’s National Centre for Social Economic Information and Forecasting predicted November’s CPI growth at only 0.8 per cent. “This is not a relatively high number,” Au Viet Securities analysts said.