High Price Hike Pressure Predicted in Second Quarter

Price hike on a large scale

A source from the domestic market management agency under the Ministry of Trade, in March and the first quarter (Q1) of this year, the pressure on prices of locally-made goods increased significantly due to a price hike of imported materials.

In Q1, in the context of possible large-scaled price hike of many locally-made goods, the Vietnamese Government has guided ministries, agencies and localities, as well as enterprises to take measures to control bird flu, not to increase prices of necessities, including coal, electricity and cement. Also, import tax of clinker has been cut while market management activities have been boosted. As a result, the number of goods in circulation was abundant, effectively meeting consumers' demand. However, the consumer price index (CPI) was still up by 3.7 per cent in Q1, especially food and foodstuff products which saw their CPI up by 6.1 per cent and other groups of goods, between 0.2 to 2.3 per cent.

Food price in Mekong delta provinces began to increase from mid-March. While prices of some foodstuff products have tended to drop, the price of sugar continued to rise. Prices of export related agro-produce, such as rubber, coffee and cashew nuts, are on the rise. Prices of fertiliser inched up in many localities. Prices of cement and steel have seen an increase in several provinces and cities. In comparison with February, the CPI in March was up by 0.1 per cent. This figure was put at 0.3 per cent in rural areas due to an increase of 0.2 per cent in price of food and foodstuff.

High pressure

According to the forecast of the domestic market management agency under the Ministry of Trade, price hike pressure will continue to be high with prices predicted to continue to rise by US$50 per tonne for crude oil, US$250 per tonne for fertiliser and between US$400 and US$420 per tonne for steel ingots in Q2.

Price hike pressure can be seen clearly in food and foodstuff products. World rice prices will continue to rise due to the increased demand. As a result, prices of Vietnam's exported rice will increase by between US$16 and US$17 per tonne. Present export prices are US$35-40 per tonne higher than the same period of 2004. In the domestic market, despite abundant supplies of rice in April, the price of rice may continue to rise, possibly at between VND2,400 and 2,450 per kilogram due to the increased demand for export (so far, Vietnam has signed a contract to export 780,000 tonnes of rice to the Philippines) alongside an increase in price in the world market. A kilogram of rice is priced at VND 2,350.

The price of urea fertiliser in the domestic market has increased by between VND 50 and VND 100 per kilogram. Under the impact of the increased import prices, it is predicted to reamin high in the coming time. Also, an increased demand for fertiliser in April will add pressure on the price. Vietnam still 1.4 million tonnes short of the urea it needs for this year's crop.

Due to the stabilisation of supplies and selling prices, oil and petrol traders suffered a loss of VND 580 for a litre of petrol, VND 2,580 for a litre of diesel, VND 2,715 for a litre of fuel oil and VND 747 for a litre of mazut oil. However, the announcement of price increase of oil and petrol made by the Ministry of Finance on March 29, 2005, has helped traders balance their expenditures and incomes. Therefore, it will be difficult to stabilise prices of oil and petrol if banks do not increase in foreign currency credit limits for importers and the State budget cannot compensate losses to oil and petrol traders.

A similar situation can be seen in the steel and cement industries. If coal price increased by 45 per cent from April 1 (the price has so far increased by 35.9 per cent against that of 2004, reaching VND 430,000 per tonne), it will be very difficult to maintain prices of steel and cement at a stable level.

The domestic market management agency forecasts that CPI in April and Q2 will increase by between 0.3 and 0.5 per cent against that of March and Q1. To stabilise domestic prices, especially prices of necessities, the agency has proposed that the Government approve a project on improving market management and regulation for necessities, which will act as a foundation for forming business mechanisms of necessities and a more modern and effective distribution network. Accordingly, in the short-term, the Government has been proposed to ask the Vietnam Coal Corporation to stop increasing prices of coal until the Government issues new guidelines. The Ministry of Finance will consider all factors, which form prices of necessities, to create reasonable prices in the domestic market.

• Kim Phuong