Specter of high inflation looms on Vietnamese horizon

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People pay fees in Bach Mai Hospital in Hanoi. The rise in healthcare, education and transports costs led to the sharp increase in consumer price index, according to the national statistics agency.

In August the consumer price index rose at its fastest pace since May 2012, raising concerns about a possible recurrence of high inflation this year.

The CPI increased by 7.5 percent year-on-year, faster than last month's 7.29 percent rate, according to the General Statistics Office (GSO).

The government hopes to keep inflation this year at below 7 percent.

The rise in August's CPI was led by increases in healthcare, education and transportation costs, the GSO said. 

Healthcare services saw the highest price hike at 4.11 percent, while transportation rose 1.11 percent after gasoline prices increased on July 17.

The index rose 0.83 percent from July and was up 3.53 percent from the end of last year, the GSO said.

With the inflation hike, Vietnam will find it hard to keep the CPI increase at the targeted 6-6.5 percent for the whole year, said economist Nguyen Minh Phong.

"Inflation may rise to 7.3-9.6 percent," he said.

This year, the CPI has sharply increased since June. In the remaining months, the index typically increases further, so the government's inflation target has become an "impossible mission," he said.

To keep inflation within single digits, one should focus on reducing speculation on goods, control prices of monopoly products, and reduce state budget overspending, Phong said.

Of these, controlling prices of monopoly products is the most important, he said. It is necessary to avoid the situation that prices of some essential items like gasoline and electricity increase in a short time, significantly raising prices of consumer products, he said.

Gasoline prices rose 3.3 percent in June and then a further 1.9 percent to reach an all-time high on July 17. Power costs also increased 5 percent to VND1,508.85 (7.1 US cents) per kilowatt hour since August 1. Another five percent increase had happened in December.

Economist Ngo Tri Long said the government can still achieve its inflation control target, but the government should be vigilant, he said, noting that the economy is still mired in many difficulties.

Consumption demand is still low, production and trade have stagnated, and inventory levels are still high. Firms are yet to overcome their difficulties, Long said.

EuroCham members participating in a recent survey expressed increasing concern over their current business situation and fear of increased inflation, as well as the overall macro-economic outlook for Vietnam.

Up to 43 percent of surveyed firms said an increase in inflation would seriously affect their business.

Vietnam's GDP growth was 5.03 percent last year, much lower than the target of 6-6.5 percent and the lowest rate in 13 years.

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