Price increases latent

Construction materials prove to be the most ‘unstable’ products. The owner of the construction material shop at No 176 Lac Long Quan in Tan Binh district in HCM City said that cement is now in serious shortage. Ha Tien brand name cement price has soared from VND64,000/pack to VND70,000; however, the supply proves to be inadequate. Cement traders dare not accept orders in advance, even just one day, as prices are escalating day by day due to the higher prices of material.

The steel price is staying firm at VND16mil/tonne, the same as one month ago. However, the price level represents a two-fold increase compared to the end of 2007.

Ngoc Thuy, the owner of Ngoc Thuy Construction Material Shop in HCM City, said that steel prices are not skyrocketing at this moment because of the quiet real estate market. A lot of construction projects have been delayed, which also means a lower demand for steel.

The rice market has returned to normal after some days of chaos due to the rice shortage rumour. Popular types of rice are selling at VND10-12,000/kg, while good-quality products, VND18-22,000/kg.

According to Duong Thi Quynh Trang, Public Relation Director of Big C Supermart Chain in HCM City, fresh food prices have stabilised. Dieu hong fish is now selling at VND36,700/kg, codfish VND72,700/kg. In general, food prices have increased by 2-3% compared to the end of 2007.

Vegetable prices are tending to decrease: tomatoes VND5,800/kg, down by 18%, carrots VND6,700/kg (- 26%), spinach 2,800/kg (- 22%).

Meanwhile, the fertiliser price is unexpectedly skyrocketing. Chinese and US-made products have increased by VND250-300,000/pack, now selling at VND1.3-1.4mil/50 kg pack. China-made and Phu My-made urea is selling at VND450,000/pack, up by VND70-90,000/pack.

The high price of fertiliser proves to be worrying as this will lead to the higher prices of rice – the highest risk for a further commodity price increase wave.

There has been no slight commotion about petroleum and electricity prices. An official of Petrolimex said that petrol importers have been incurring losses, but still cannot raise sale prices, since the Prime Minister instructed them not to raise retail prices prior to July.

Similarly, the Electricity of Vietnam cannot raise sale prices, though it previously proposed raising sale prices as of July 1, 2008.

Restraining prices or leaving them alone?

Dinh Son Hung, Deputy Head of the HCM City Economics Institute, said prices will increase further in 2008. The oil price will keep rising, Vietnam’s trade deficit still cannot be improved in the context of the world’s price escalation. Other key commodities, like petroleum, electricity, coal and materials will also see further price increases, though the increases may not be as sharp as seen in the last time.

Hung fears that a new chapter about inflation will begin after June 2008, when the Prime Minister’s order not to raise prices expires. Two scenarios have been drawn up for the period after June 2008 as follows:

If the government does not order businesses to curb price increases anymore, prices will skyrocket rapidly. Bank depositors will enjoy negative interest rates, while banks will not have enough capital to provide to businesses. Slower economic growth, narrower production and higher unemployment are the anticipated things in that scenario, which could also lead to economic crisis.

If the government is determined to curb price increases, Vietnam’s price levels will become much lower than the world’s levels, which will trigger cross-border smuggling. Petrol is being smuggled through the border gates, causing the loss of billions of VND to the state budget.

When the government tries to restrain price increases, it has to apply associated measures, including compensating petrol importers.

The government is using administrative orders to regulate the domestic market, things that are not recommended by economists as they may disrupt the market. Moreover, as Vietnam is integrating into the world, administrative orders will not be able to last for a long time.
Source: Vietnamnet