Vietnam’s Inflation

Vietnams governing is set to entrap electrical energy prices by 15% on Tuesday, at a epoch when the population is already struggling with a soaring cost of living. conclusion week the Vietnamese governing body also raised the retail prices of embrocate products by as much as 24%. In February, fanfare hit a two-year high of 12. 31%. Analysts say patronage the governments measures to tighten monetary policy, price compels are likely to continue. The increases in energy, electricity and petroleum indicate that we are going to see inflation loll around a little worse despite the shift in government policy, said Christian de Guzman of Moodys Investor Group.Overheating For years the Vietnamese government has kept a loose interest rate policy and subsidized lend in order to boost growth. The government expects the economy to expand as much as 7. 5%, up from 6. 8% in 2010. only the cost of that rapid pace is that the economy has started to show signs of overheating. Credit milit ary rating agencies cut the countrys sovereign-credit rating last year. Inflation fears have also caused a sell- discharge in Vietnamese markets. Vietnams benchmark stock index has slid 6. 7% in the past year. The Vietnamese government was focused on growth at all costs, said Mr de Guzman. By the middle of last year they had already reached their inflation target but then they continued to pursue new(prenominal) macroeconomic policy targets like credit growth and gross interior(prenominal) product growth, he said. Fighting inflation But since the beginning of this year, the government seems to have shifted its policies towards stabilizing prices. Last week the Vietnamese government announced a set of measures to curb inflation.Electricity prices have been raised in an effort to discredit budget spending The central bank latterly raised the cost of borrowing. It increased the benchmark refinance rate by 2 percentage points from 9% to 11%. The government has also vowed to reduce g overnment debt. To that effect, it cut the budget-deficit target to less than 5% of gross home(prenominal) product, from 5. 3%. Reducing government spending on subsidies for fuel and electricity are also part of that plan. In order to stave off inflation, they want to cut back on subsidies.It does alleviate some of the pressure on the budget, said Mr de Guzman. Dong devaluation The other major strain on the Vietnamese economy is the currency. The central bank devalued the dong against the US dollar by 8. 5%. It is the latest in a serial publication of devaluations the government has implemented to reduce the risk of a shortfall in foreign currency reserves. However, that will lead to higher import costs, which in turn, could again increase inflationary pressures.