The government has tightened its monetary policy to fight inflation, but prices look set to rise through the Lunar New Year.

Despite slashed import tariffs and additional government and treasury bond issues, the Vietnam consumer price index (CPI) rose 0.74 percent in October and is over-all 9.34 percent higher than at the same point last year.

A series of Government and treasury bond issues have also been unable to curb the climbing prices.

Global production costs

Experts say that the international crude-oil price is poised to cross the US$100-a-barrel mark.

Oil prices have surged nearly 40 percent since mid-August as worries about winter supplies, the weakening dollar and geopolitical tensions drew fresh speculative investment.

Such an increase would bring gasoline prices up with it.

Oil price affects the price of most commodities such as plastic goods, processed food, vegetables, fruit and cosmetics, largely due to higher transport costs.

Bus, taxi and air travel fares could all climb due to higher gasoline prices.

The price of imported materials such as steel and fertilizer could also escalate as well.

Increasing loans

Despite criticism from bankers and investors as well as some local financial experts, the State Bank of Vietnam has affirmed its intention to reinforce a three percent limit for securities-backed loans.

The monetary authority could enforce heavy penalties, up to license revocation, for banks found in breach.

A recent report shows that many commercial banks still have loan-ratios far exceeding the allowable three percent limit.

Since commercial banks must comply with the fiscal policy, they need to both reduce loans to stock customers and divert loans to other sectors, such as real estate and retail.

Increased loan disbursements from commercial banks contribute to high inflationary rates and consumers with monthly incomes over VND2 million ($120) can obtain easy credit.

Increasing spending on bank credit will not help inflation.

Lunar New Year

Traditionally, during the period leading to the Lunar New Year Festival (Tet), prices hike and people spend more.

Retail stores achieve the highest sales during this time of year.

Prices at chain stores like Citimart in Ho Chi Minh City increase considerably everyday during the Tet season.

As reported by the GeneralStatistics Office (GSO), the total sales of retail goods and services were 22.7 percent higher through October this year compared to the same period last year.

The bureau said it expected the figure to continue rising in the near future.

Foreign tourists, overseas Vietnamese, and remittance

Additional foreign tourists and foreign remittance boost the economy, but also intensify inflation pressures.

According to the GSO, overseas investors visiting Vietnam in October increased 17.8 percent compared to the same period last year.

This trend is expected to repeat during Christmas and the New Year's holiday — vacation periods for foreigners.

The number of overseas Vietnamese returning to Vietnam is estimated to increase alongside a government decision in September to abolish visas for this group.

The remittance from overseas Vietnamese to relatives in Vietnam during the Tet holiday alone could amount to millions of US dollars.

By Vo Xuan Vinh (PhD Candidate/Associate Lecturer, University of New South Wales)

Source: ThanhnienNews.