Has the third deflation wave reached Vietnam?

Has the third deflation wave reached Vietnam?

Vietnam lacks forecasts about deflation and the scenarios to deal with it if it occurs. International institutions have warned that the country may face deflation as the Consumer Price Index has increased very slowly in recent months.

Just within one decade, the global economy has sustained waves of deflation. The first one broke out because of the subprime financing in the US. The second one was triggered by the crisis in the Euro zone. And most recently, events in emerging economies have raised worries about the spread of the third deflation wave.

The phrase ‘third deflationary wave’ has been repeatedly mentioned in recent days when Dominic Rossi, investment director of Fidelity Worldwide Investment noted the decrease in consumption, in goods prices and production costs.

The currency war with the appreciation of the greenback, the serious crisis of the ruble, the sharp depreciation of the yuan and the uncertainties of the Chinese stock market, plus the big problems from some economies, all show the worrying situation of the global markets.

The Financial Times believes that Vietnam, like Japan and the UK, is also facing a risk of deflation.

This is occurring even though Vietnam now has a golden population structure, with many people of working age, in contrast is to the older Japanese population. Moreover, Vietnam has obtained high GDP growth rates in recent years.

However, deflation can be seen in the very low consumer price increases in recent months. The consumer price in Vietnam in September decreased by 0.29 percent, while in principle, the index should be higher in this month, when the demand for education, healthcare, transport service and input materials increases as businesses prepare for the year-end production season.

The CPI has increased by 0.4 percent only this year, which, according to the General Statistics Office (GSO), is the lowest inflation rate in the last decade.

The 0.4 percent inflation rate is near zero percent level, the threshold for an economy to be considered deflationary.

However, the government of Vietnam still believes that deflation is still far from Vietnam.

Nguyen Bich Lam, GSO’s general director, noted that the State Bank of Vietnam’s decision to devalue the dong by 4 percent and widen the trading band by 2 percent alone would make the CPI increase by 0.7 percent from now to the end of the year.

Lam also affirmed that a 5-8 percent inflation rate would be ‘reasonable for Vietnam’s economy’.

According to Le Xuan Nghia, a member of the National Advisory Council for Monetary Policies, in theory, a one percent exchange rate adjustment would increase the inflation rate by 0.13 percent.

vietnamnet