Vietnam’s inflation on the rise

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The second HSBC Emerging Markets Index (EMI) released on April 7 read that Vietnam would continue to see acceleration of inflation in the coming months.

“Inflation continues to accelerate while the trade deficit remains large. This sharp acceleration in inflation in recent months is likely to continue to at least second quarter as the government tries to bring retail energy prices to levels that allow distributors to have a sufficient profit margin,”” said Frederic Neumann, HSBC’s co-head of Asian Economics Research.

Vietnam's General Statistics Office recently reported the consumer price index (CPI) in March rose 2.17 per cent against the previous month, pushing inflation in the first quarter to 6.12 per cent.

““While Asia’s growth prospects remain solid, the start of the second quarter this year will be challenging. Inflation is already dampening domestic demand and strong exports remain vulnerable to global supply chain shifts and volatile US demand.”

“However, strong employment in the region will support income growth and the quantitative tightening employed by China and other Asian economies will help stabilise prices. There is a real opportunity for the rest of Asia, in particular the ASEAN5 comprising Vietnam, Malaysia, Thailand, Indonesia and the Philippines to capitalise on their respective economic strengths to play a bigger role in the global supply chain.” Neumann added.

The latest HSBC Emerging Markets Index reveals that inflation is in danger of becoming an entrenched problem while the pace of growth, although perfectly adequate, has lost momentum. Rising inflation and fading growth are hardly an encouraging combination and the hope must be that the loss of momentum will eventually temper inflation. 

Emerging market growth eased slightly in the first quarter of 2011, reflecting slower expansion in both manufacturing and services as emerging market companies contend with an ever higher cost burden.

As forecast by the previous HSBC EMI, inflation presents the key risk to growth in 2011. Input cost inflation across the emerging world quickened to its strongest level in almost three years, reflecting the boost to commodity prices from infrastructure investment, higher food prices due to demand-supply imbalances and the global impact of monetary policy in the United States.

The EMI dipped to 55.0 from 55.7 from previous HSBC EMI report released in the final quarter of 2010, but remained broadly in line with the long-run series average of 54.9. 

The moderation in emerging market growth reflected slower expansion in both services and manufacturing, with growth in the former hitting a near two-year low. Manufacturers recorded a faster rate of expansion than service providers for the second quarter in succession.

The HSBC EMI is a weighted composite indicator derived from national Purchasing Managers’ Index (PMI) surveys in the emerging markets of Czech Republic, Hong Kong, Israel, Mexico, Poland, Singapore, South Africa, South Korea, Taiwan, Turkey, UAE, Saudi Arabia and the increasingly important BRIC economies of Brazil, Russia, India and China. These surveys collectively track business conditions in over 5,800 reporting companies.