Is Vietnam facing deflation?

Is Vietnam facing deflation?

Vietnam saw the lowest consumer price index (CPI) increase in the last 10 years in September, which has raised concerns about the risk of deflation.

The Financial Times has quoted sources predicting that they can see signs of deflation in Vietnam, a danger that Japan and the UK are also facing.

Dominic Rossi from Fidelity Worldwide Investment said that lower demand, lower commodity prices and the decline in manufactured goods’ costs are signs of a “third deflationary wave”.

Vietnam’s CPI increase, which was very high in the past, was 0.8 percent in September. It decreased by 0.07 percent in August compared with the month before.

The inflation rate climbed to 22 percent four years ago. The government of Vietnam has succeeded in curbing inflation with the rate staying at 6 percent in the last two years.

Vietnam’s targeted inflation rate is 5 percent, because the rate needs to be high enough to ensure high GDP growth.

In May 2015, when the inflation rate was one percent, some government officials said the government still aimed for the target of 5 percent, but admitted that the competitiveness of Vietnamese products had become weaker in the world market. This was attributed to Vietnam’s policy on stabilizing the local currency, while Vietnam’s rival countries all devalued their currencies to protect their exports.

Vietnamese newspapers quoted the General Statistics Office (GSO) as saying that the latest moves by the State Bank on devaluing the dong would increase the CPI by 0.7 percent by the end of the year.

GSO also thinks the 5-8 percent inflation rate would be good enough to foster GDP growth.

Meanwhile, other economists disagree with the prediction about deflation for Vietnam.

Eric Sidgwick, Country Director of the Asian Development Bank, said in Dau Tu that deflation is still far away from Vietnam.

He said analysts predicted a low inflation rate for 2015 because they see prices of goods going down, especially because of the oil price and input material prices.

However, he believes credit and consumption growth in the time to come will push the inflation up.

ADB thinks the inflation rate in Vietnam in 2016 may reach 4 percent.

GSO’s general director Nguyen Bich Lam said that low inflation is not caused by a drop in demand, but by the lower cost. The oil price decline in the world market has led to a sharp price decrease for many products.

Cao Viet Sinh, a senior expert, said after the Prime Minister’s consultancy group’s meeting last week, deflation won’t occur in Vietnam.

The Ministry of Planning and Investment has projected a GDP growth rate of 6.7 percent for 2016.

vietnamnet