HANOI: Rising food prices are expected to push Vietnam’s inflation rate to more than nine per cent this year, data showed Friday, piling pressure on the country’s leaders to restore economic stability.
The news comes after the country’s donors warned that rising inflation and weakness in the dong currency could seriously hurt the nation’s growth prospects.
The General Statistics Office said consumer prices would likely rise 9.2 per cent in 2010, well up from 6.88 percent last year and higher than the government’s target ceiling of eight per cent.
In December alone, prices rose 11.8 per cent against the same month last year and two percent from November, the GSO said.
The hike has been led by soaring food costs. Official data shows food prices were up 10.7 per cent year on year in December, and 3.3 per cent higher from the previous month.
The World Bank said in a recent report: “Rising prices of commodities and manufacturing products remain the key drivers of the recent hike in the inflation rate.”
The Bank has also said that inflation is historically high in Vietnam due to the government’s traditional policy of emphasising growth over macroeconomic stability.
But at an annual meeting of donors earlier this month, Japanese ambassador Yasuaki Tanizaki spoke of “growing concern” at the country’s currency and price rises. Japan is Vietnam’s biggest bilateral donor.
“It’s a priority for Vietnam to adopt effective measures to restore public confidence in (the) dong and improve communications with the market to stabilise its currency,” he said.
The dong has been devalued three times since late last year and has lost nearly a third of its value against the US dollar over the past three years, according to a recent World Bank report.
A government minister has said growth is expected to hit 6.7 per cent this year, just above the official 6.5 percent target.
For 2011 the government is aiming for seven per cent growth and inflation below seven per cent.
On Thursday Global ratings agency Standard & Poor’s lowered Vietnam’s sovereign credit rating, citing concerns about the nation’s banks.
A negative outlook on the ratings “reflects our expectations that the current macroeconomic uncertainties would continue to weaken support for financial stability in Vietnam”, S&P said.
Ratings agency Moody’s also cited rising inflation — along with the risk of a balance of payments crisis and the debts of nearly-bankrupt state-owned shipbuilder Vinashin — when it downgraded Hanoi’s bond rating this month.
What does this mean for Vietnam in 2011? Is the inflation rate going even higher if prices of commodities continue to soar? With inflation also rising in the surrounding regions, it is likely that prices will go up further, making the value of money lower. Wages will remain the same so what can be hedged against inflation in such a situation?
The earlier lessons of putting our money on hard assets may be the answer to this question. This is time to put on the investment hat and start now than to wait any longer as the market does not wait for you. Awesome!