The Hanoitimes - HSBC, in its latest update on Vietnam, forecast the country`s headline inflation could breach the 4% curb as early as this month,
The assessment is fueled by the country’s consumer price index (CPI), a gauge of inflation, rising to a six-year-high of 3.86% year-on-year.
This puts headline inflation just a tad below the State Bank of Vietnam (SBV)'s target of 4%. Nevertheless, SBV is expected not to hike its policy rate for now.
Despite high GDP growth in the first quarter, credit growth since the beginning of the year has been below the government's 17% target and declining. This, according to HSBC's report, has always been a point of emphasis for the government and the SBV to ensure that economic growth remains robust on the back of higher investment and consumption.
Instead of hiking the policy rate, it appears more likely that the government would opt to implement administrative measures to limit inflation. For instance, following last month's CPI print, government officials have reportedly planned to issue a new circular that would reduce healthcare costs beginning 15 July 2018. The Ministry of Industry and Trade has also issued an order not to raise electricity prices this year.
The report stated a decline in health prices could prove to be significant in curbing inflation, considering that it is the largest contributor to rising prices. However, an actual reduction, not just a halt, in the rise of healthcare costs is necessary to bring inflation down. Healthcare costs have actually been largely unchanged over the past two months on a sequential basis, and yet, it has done little to offset the rise in food prices. This is a space worth noting moving forward.
It is, however, expected that headline inflation to average 4% for the year, which is consistent with the SBV's target.
The CPI in May increased over 0.55% month-on-month, largely due to a rise in food prices, which rose 0.9% month-on-month after two consecutive months of decline and an increase of 3.4% year-on-year, its highest since 2014.
Government officials attributed the faster-than-expected rise in prices to higher animal feed and pork prices. Higher global oil prices also led to a notable rise in transport costs, while the rise in other CPI components remained largely in line with the previous month.
The upside surprise in May is significant, as it reintroduces the risk that headline CPI will breach the central bank's 4% target sometime in the middle of the year. However, two consecutive months of downside surprises in March and April largely depressed that risk, HSBC noted