Inflation control should begin with monopoly curbs: experts

This could undermine the government’s anti-inflation efforts, said economist Ngo Tri Long.
Petrolimex, Vietnam’s top oil importer and distributor, has raised its retail petrol prices twice since the beginning of this year. The latest increase of more than 3 percent on February 21 took the price of 92-octane gasoline to VND16,990 (US$0.89) per liter.

The “irrational” price increases, which have raised the prices of other products, have made consumers unhappy, Long said, noting that while petroleum prices in the world market have not increased by much recently, Vietnam has seen four increments in the past five months.

“The petroleum business now is a monopoly, thus the government should decide the prices, not allow firms to do it themselves,” he said. Holding more than 60 percent of the country’s market share, Petrolimex’s price adjustments will be followed by other petroleum firms, he said.

The government is the only entity that should decide the prices based on the harmonization of interests of the state, enterprises and consumers, Long said.

If the government wants to let enterprises decide their own prices, it should apply antimonopoly mechanisms frequently used by foreign countries, or divide Petrolimex into several enterprises so that each firm does not account for more than 30 percent of the market share, he said.

The government on March 5 asked the Ministry of Industry and Trade to cooperate with the Ministry of Finance to review the increase in retail prices of petroleum products.

Earlier, chairman of the government’s office Nguyen Xuan Phuc said at a press briefing that the recent consecutive increases of petroleum products’ prices have negatively affected the prices of related products, fostering public discontent.

The government will ask relevant agencies to closely monitor the increase of petroleum products’ prices, preventing consecutive price increases from recurring, he said.

Inflation could exceed target

Long said the risk of high inflation this year was very big because of the high consumer price index (CPI) in the first two months and the potential for rising prices in the remaining months.

Vietnam’s annual inflation hit its highest level in 10 months in February, rising 8.46 percent from the same month in 2009 and increasing 1.96 percent from January, according to the General Statistics Office.

“It will be difficult to fulfill the target of keeping 2010 inflation below 7 percent,” Long said.
Tai Hui, Regional Head of Research, Southeast Asia, for the Standard Chartered Bank, also said Vietnam’s inflation risk remains on the higher side because of the rising prices of commodities and the dong devaluation.

“We expect inflation to exceed 10 percent by the year-end and average 8.9 percent in 2010.”
However, Vu Viet Ngoan, vice chairman of the National Assembly’s Economic Committee said there was no need to worry too much about the inflation hike, as the government had implemented a series of drastic anti-inflation measures, such as reducing the state budget deficit, removing interest rate subsidies and increasing the central bank’s base rate from 7 percent to 8 percent.

“It is quite acceptable if inflation this year is kept below 8 percent. The inflation will not cause big changes to firms and people,” he said.

Vietnam’s consumer price index will rise around 4 percent in the first quarter and 8-9 percent for the whole year, said Le Duc Thuy, chairman of the National Financial Supervisory Committee. The government will manage the base interest rate, refinancing interest rates, and monitor credit growth in the coming months, he said.

The government aims to keep credit growth at around 25 percent this year.
In another move to curb inflation, electricity prices and the cost of coal sold to electricity firms will not see further rises this year, Phuc said.

Prime Minister Nguyen Tan Dung has also asked relevant ministries and sectors to reduce trade deficits, and strengthen monitoring of the prices of essential items and services such as transportation, cement, steel, fertilizers, rice and pharmaceutical products.

“Raising interest rates and reducing liquidity are the best ways to tackle the trade deficit and rising inflation, in our view,” said Hui.