Inflation to ease off from next month: JPMorgan

Vietnam’s inflation may peak next month at about 29% and lose pace in the coming months as the economy slows, according to JPMorgan Chase & Co.

Consumer prices increased 1.56% this month from July. On a yearly basis, prices rose 28.3%.

Accelerating inflation has stoked concern that Vietnam’s economy may be overheating, prompting the government to raise interest rates three times and order banks to reduce credit this year.

Evidence in recent months that inflation is nearing its limit sparked a 53% rally in the benchmark VN Index from June, its lowest level since 2006.

“Lower global inflationary pressures, along with slowing domestic demand in Vietnam, should soon start to filter through to slower inflation,” wrote Matthew Hildebrandt, an economist at JPMorgan in Singapore, in a note dated Monday.

The acceleration in August largely resulted from an increase in petrol prices, with a slowdown in so-called core inflation, which excludes food and transport costs, he wrote.

Vietnam increased gasoline prices on July 21, boosting the cost to motorists of the most commonly used grade by 31%.

Prices were cut on August 14, leaving the fuel, known as 92-RON, 24% higher than before the July increase.

Food prices ease

Prices in the category containing food rose 44.2% in August from a year ago, down from a gain of 44.7% in July, while prices in a subcategory including rice climbed 69.4%, down from a 72.7% rate in July.

The food figures “bode well for slower consumer price inflation growth in the near term,” Hildebrandt wrote.

Gains in consumer prices would probably reach their height at 28.4% next month, Prakriti Sofat, an economist at HSBC Holdings Plc. In Singapore, said in a telephone interview.

“Inflation is close to peaking in Vietnam, after which it should decline gradually,” she wrote in a note to clients Monday. “Softer rice prices are key for Vietnam.”

The export price of Vietnam’s 5% broken-grain rice, its top quality variety, is being quoted as low as US$575 per tonne, down 23% from US$743 in July, according to a report this month from the US Department of Agriculture. The US expects Vietnam to be the world’s second-biggest rice exporter this year, overtaking India.

 

Category: Economy