Higher food, petrol prices fuel Vietnam’s inflation: HSBC

By An Hong   September 29, 2016 | 02:54 pm GMT+7
Higher food, petrol prices fuel Vietnam’s inflation: HSBC
A man works at a yarn weaving plant in Ha Nam Province outside Hanoi. Photo by Reuters/Kham

Vietnam's ambitious economic growth target is likely to put more pressure on the economy.

Higher food and fuel prices are likely to push Vietnam’s inflation up in the final months of this year, according to a new HSBC report.

The report said Vietnam’s consumer price index (CPI) has been rising steadily from the record low inflation of 0.63 percent last year. September's CPI is estimated to rise 3.34 percent on-year due to higher prices of food and fuel.

The Hong Kong-based lender said it is unlikely that annual inflation in 2016 will go past the government’s target of holding inflation below 5 percent. However, it expected increases in food prices, health care services, school fees and petrol prices in the coming months.

Vietnam’s ambitious economic growth rate of above 6 percent is expected to put more pressure on annual inflation, according to HSBC economists, who said the central bank is unlikely to have much more room to move.

Privatization push

Vietnam is determined to make its latest privatization push work after the country’s budget deficit reached an estimated VND111.5 trillion ($5 billion) in mid-August, HSBC experts cited the National Financial Supervisory Commission as saying, equal to 44 percent of the annual target.

The budget deficit is likely to become more burdensome in the coming months, said HSBC, because the government is set to spend more on infrastructure projects, hoping that additional spending on roads, bridges and other infrastructure will boost economic growth.

HSBC said the latest attempt to sell stakes in major state-owned enterprises, including dairy giant Vinamilk and much sought-after brewery Sabeco, will add approximately $6.7 billion to the government’s coffers.

However, the report warned that the lack of information transparency could slow Vietnam’s latest effort to privatize state-owned companies as foreign investors would not pay a high price for a stake in a company that they know little or nothing about.

Free trade works, regardless of TPP

Vietnamese lawmakers have halted another round of voting to ratify the pending Trans-Pacific Partnership given the fact that it remains unclear whether the United States, the largest economy among the 12 TPP member countries, will sign on to the trade pact.

HBSC economists said Vietnam will be the biggest TPP beneficiary as the pact will accelerate economic reforms in Vietnam, boost the country’s competitiveness and open up new markets.

It came as a surprise to HSBC experts that Vietnam delayed the ratification process, which was previously expected to be completed last month.

“No matter what the fate of the TTP will be, Vietnam is certain to stride forward, reaping more benefits from entering new markets,” said HSBC, referring to a variety of free trade agreements that Vietnam has concluded with South Korea, Japan, the European Union and ASEAN.

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