Inflationary Pressures Gain Weight

After half a year living with relatively comfortable prices, with some foods at lower prices like pork, housewives are now starting to feel the burning heat of price hikes, easily seen with their daily items on their shopping list like vegetables and foodstuffs. After repeated gasoline price hikes, power companies decided to raise prices on July 31, effective one day later. The power price hike is reportedly undermining price-stabilising efforts. Essential consumer goods, particularly foods, start to gain prices.

 

Food distributors have announced new prices. Fish sauce, cooking oil, confectionery, dairy and other staple items will soon increase between 5 and 15 percent in prices. Some retail stores are rushing to accumulate goods ahead of new price hike. For the time being, prices of imported foodstuffs like confectionery and canned food are advancing. Fresh foods prices have also increased significantly. Fresh seafood prices go up VND5,000 - 10,000 per kilogramme as higher gasoline prices push up fishing and shipping costs. Pork prices rise by VND5,000 - 10,000 per kg while poultry meat price also ups VND10,000 - 15,000 per kg. The reason for higher vegetable prices is also attributed to rainy weather.

 

Dairy prices are also inclined to leap. Anticipating the price-rising trends, milk shops increase the price significantly.

 

While consumers are feeling the heat of consumer goods prices through essential goods like food, education and medicine, economists fear that prices are being pushed up sharply by rising prices of inputs and loosening monetary policy. Banks and financial companies are offering consumer loan packages with more open mechanisms and more competitive interest rates. Recently, some banks have even offered zero interest rates for some first months. Commercial lending rates fell to 11-13 percent from 15 percent per annum at the start of this year. Borrowing money is now not as difficult as one year ago. The affordable housing credit package worth VND30 trillion has also been launched. The State Bank of Vietnam (SBV) pumped net cash into the open market. CPI is forecast to accelerate in the coming months on loose monetary policy.

 

Electricity selling price increases 5 percent from August 1. The decision by the Electricity Group of Vietnam (EVN) surprised the market because only one day earlier the Government spokesman, Minister Vu Duc Dam, told a press conference that, unlike previous sudden changes, the Government had asked EVN to have plans to collect public feedbacks before any adjustments to power price change plans. Citizens and businesses were flabbergasted by EVN’s power price hike, shortly after the confirmed message from the Government spokesman.

 

While the economy has not solved internal problems yet, companies continue to face more difficulties. Surely, electricity price increase will place heavier cost burdens on the shoulders of businesses. Purchasing power is declining and companies are struggling to boost up the purchasing power by launching more stimulus and promotion measures. While input costs and labour costs are rising, their selling prices are unlikely to go up soon because of weakening purchasing power. The power price rise will push up production costs of companies, thus reducing their competitiveness.

 

EVN explained that the price hike aims to partially offset increased power costs caused by higher coal and gas prices. Coal price surged 37-41 percent from April 20, 2013. The new power price hike was just enough to compensate only the coal price rise, not the recently announced loss of VND20 trillion (nearly US$1 billion) caused by exchange rate volatility.

 

The latest rise in gasoline price on July 17 was resulted from the global upward spiral and was translated into CPI growth in August. Transportation group reported the highest price growth of 1.34 percent from the previous month as the result of petroleum price hikes on June 14 and June 28.

 

Electricity and petroleum prices are currently administered by the Government because they affect many industries. When the price of these items goes up, it will place a very strong push on consumer prices. According to the General Statistics Office (GSO), the 5 percent rise in electricity price will surely affect consumer price index in August.

 

Customarily, prices tend to rise in the last months of the year as the demand surges ahead of traditional lunar New Year. Although prices seemed to quite comfortable in the early months, the recent hikes in gasoline and electricity prices distressed consumers. Besides, medical charges were also increased from August 1. According to a recent report released by Nielsen, a majority of Vietnamese people are worried about the rise in electricity, petroleum and food prices in the next 12 months. Vietnam’s consumer confidence index dropped one point to 95 points in the second quarter while this index gained globally. Given low confidence, people are forecast to continue tightening their spending and economic recovery prospects are not so bright.

 

Meanwhile, the Government is seeking support solutions for enterprises. Current solutions are not really clear and strong but higher input costs are adding more hardships for enterprises.