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Next stop in Vietnam: deflation

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Next stop in Vietnam: deflation Empty Next stop in Vietnam: deflation

Post by RamblerNash Fri Sep 25, 2015 3:46 am

Next stop in Vietnam: deflation

a day ago

A potent symbol of how disinflationary trends are reaching every corner of the globe: Vietnam is on the brink of deflation for the first time since records began.

Consumer price inflation in the Southeast Asian nation was expected at +0.8 per cent in September. In reality, it was zero — the lowest reading in almost 10 years of data.

It's a remarkable turnaround for a country long-suffering from uncontrollable price rises. As [url=http://www.vn.undp.org/content/dam/vietnam/docs/Publications/Inflation targeting and the implications for monetary policy framework in Vietnam-Eng.pdf]one UN study put it[/url], "If the price level taken in 1976 was 100, that of 1981 would be 313, that of 1984 would be 1,400; that of 1985 would be 2,390."

Vietnam has had considerable success taming inflation, but just two years ago prices were inflating more than 6 per cent. Four years ago the rate was 22 per cent.

Vietnam still targets inflation at around 5 per cent. Back in May, when prices were rising just 1 per cent, deputy prime minister Nguyen Xuan Phuc said that was still the target, though he acknowledged the nation's competitiveness was weakening.

The downward trajectory in inflation across much of the globe was recently dubbed the "third deflationary wave" by Fidelity Worldwide Investment CIO Dominic Rossi. It reflects weak demand, lower commodity prices and a decline in costs for manufactured goods.

According to the Asia Ex-Japan Consumer Price Index compiled by Bloomberg, the rate for the whole region hovered around 2 per cent in the second quarter, about half the rate in early 2012 and a two-thirds below the rate in 2011.

After China devalued the renminbi on August 11, Vietnam responded by widening the trading band for the dong, twice, from 1 per cent to 3 per cent, to allow the currency to fall and support exports. Since, the currency has lost 3 per cent to 22,486 per dollar.

Nguyen Bich Lam, head of the General Statistics Office, said those moves should lift CPI by 0.7 per cent by year-end. He said Vietnam should aim for 5 to 8 per cent inflation to support growth.

Year-to-date exports through August were growing 9 per cent, following five years of double-digit growth.

The fall in inflation is mostly a result of the drop in oil prices. Prices in the transport category were down 13.1 per cent over 12 months. But, food prices were also down 1.8 per cent and housing and construction material prices were down 1.7 per cent.

Looking at urban CPI only, price changes were already in negative territory, at -0.2 per cent, a first for the series. Rural CPI rose 0.1 per cent.

For policy-makers, this is a novel dilemma. The 2012 UN study cited above said that with high inflation, Vietnam's economy fell into a "whirlpool of stagnation". But, it warned, if policymakers aim to keep inflation too low the economy could fall into deflation, and the result could be "economic recession or stagnation, making aggregate demand, especially consumption and investment to decline."

Next stop in Vietnam: deflation Vietnam_nears_deflation,_a_novel_dilemma_for_policy-makers-line_chart-ft-web-themelarge-600x388%20%281%29



http://www.ft.com/intl/fastft/396401/vietnam-cpi

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