HANOI - Vietnam is redoubling its efforts to tamp down inflation in the final months of 2010 amid concerns that rising prices will add to the downward pressure on the dong and get uncomfortably high ahead of a big political meeting.
A Reuters poll published on Thursday showed economists in Vietnam and outside expect consumer prices to rise 8.5 percent this year, exceeding a government target of 8 percent. They also saw the dong weakening into next year.
With end-of-year inflation pressures set to build, Prime Minister Nguyen Tan Dung issued a directive this week for government ministries and provincial authorities to strengthen measures to stabilize prices in the fourth quarter.
The finance ministry, meanwhile, took another step last week towards much-criticized price controls by naming 150 companies, including several foreign firms, that will be required to register new prices.
Annual inflation in September jumped to 8.92 percent from 8.18 percent in August, stoking fears of a return to high inflation, even though economists mostly attributed it to one-off factors.
"Obviously the action of the prime minister and the ministry of finance is reflecting at least partially the huge concern and the reaction of the population to the very high consumer price index in September, and expectations that it will continue to rise in October," said former government adviser Le Dang Doanh.
Dragon Capital, a Vietnam fund management firm, said in a report this week September's figure was "a bit unsettling", prompting it to raise its full-year CPI forecast to 8.9 percent from 7.8 percent.
"Inflation needs to be handled because it is a key driver of currency weakness -- the other one being the trade deficit, which is probably flatlining now, but is still big," it said.
Limited effect
The dong has slipped some 2.3 percent on unofficial markets since Aug. 18 when the central bank devalued the currency for the third time since last November.
The currency has come under renewed pressure, in part due to the meteoric rise in world and domestic gold prices, but confidence in the dong is anyway chronically weak in Vietnam.
With third-quarter gross domestic product growth at a comfortable 7.16 percent from a year earlier, on target to meet the government's goal of 6.5 percent for 2010, economists say the authorities have shifted their focus to inflation.
But Jonathan Pincus, head of the Fulbright Economics Teaching Program in Ho Chi Minh City and a former U.N. economist, said the government was taking the wrong approach.
"Reducing the fiscal deficit and tightening monetary policy are necessary now to take pressure off the currency in the short term and reduce expectations of inflation," he said.
"Administrative measures will not achieve these goals, since the problem is not, as the government often assumes, high levels of profit. Rather, profits are squeezed because input and financing costs are rising for domestic firms, while the scope for price increases is limited by the availability of cheap imports."
Still, Doanh said the government's efforts were understandable.
"It's very sensitive," he said. "We are approaching the Lunar New Year and approaching the Party Congress. If on the brink of the Party Congress the consumer price index is accelerating, I think it's a big problem."
The Asian Development Bank (ADB) has upped its economic growth forecast for Vietnam this year to 6.7 percent from the 6.5 percent it projected in April.
Vietnam’s central bank said it will keep its benchmark interest rate unchanged for a ninth consecutive month in September as it strives to boost lending..jpg)
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