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High crude oil price to drive inflation

05-Oct-2004 Intellasia | 01/OCT/2004 VIETNAMNET | 1:39 PM Print This Post

Global oil price hikes will adversely impact Vietnam’s inflation rate, in contrast, Vietnam’s economy is to remain unaffected, experts say. Concerns have been raised over the nature of the impact of oil prices on Asian economic growth. However, experts remain optimistic about the prospects of Vietnam’s economic performance.
“I see nothing that can get in the way of economic growth. The targeted GDP growth rate of 7.5% is attainable, “ said Vivek Suri, Senior Economist with the World Bank.
Commenting on oil prices and the economy, he said inflation would be hit the worst. Oil price increases, along with a surge in products like foodstuffs impacted by avian influenza, will result in overall prices increases.
Oil prices, driven skyward by high demand economies like the US and China, mean higher production cost in many industries. Power sector production costs rose 0.3% since oil price increases in June, while cement production rose 2%.
Foodstuffs will remain high till year’s end, rising further if the government goes ahead with its 3.8 million tonne rice export instead of the planned 3.5 million tonnes.
Many other factors are contributing to inflation, including State salary adjustments as of October 1, and higher disbursements on construction projects, traditionally planned for year’s end.
However, experts share the view that any inflation rate increase will be nominal for 2004.
In the Ministry of Finance report on the consumer price index (CPI), officials confirmed it would not hit double digit. The Asian Development Bank forecast 9% inflation for Vietnam for 2004. CPI for the January September period is 8.6%.
Hoang Tho Xuan, director of the Domestic Market Policy Department under the Ministry of Trade said that the government is yet to adjust prices of state controlled products such as electricity, coal, and cement, pivotal in controlling inflation.
Xuan also confirmed the government would holdfast to current petrol prices, although he expressed uncertainty if oil surpasses US$50 a barrel for an extended time.
Suri from the World Bank agreed, adding that by balancing imports with exports, Vietnam can benefit from oil price increases. In the first eight months of the year, Vietnam exported $3.48 billion in crude, and imported $2.173 billion in refined petroleum products.
Vo Tri Thanh, director of the Department of Trade Policy and International Integration Studies under the Central Institute for Economic Management said foreign investors have low production costs on inputs like power in Vietnam thanks to State subsidies.
Thanh admitted that in the long run, production costs were not as imperative to attract FDI compared to government transparency.


Category: Economy

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