Is inflation finally back in Vietnam?

Reading Time: 3 minutes
By Trung Thai

Unlike its peers in the Asia Pacific region, Vietnam usually releases economic data before the close of the reporting period. CPI readings are among the earliest data to be released. The latest batch of data from the General Statistics Office indicates that inflation in Vietnam accelerated to 2.2 per cent months-on-month in September, the fastest pace that had been seen in 16 months, at a time when everybody thought price rises of 2 per cent a month were a thing of the past.

https://i1.wp.com/www.joneslanglasalleblog.com/APResearch/wp-content/uploads/2012/10/Picture_08Oct2012_1.jpg?w=700

Figure 2 shows that, barring seasonal increases in educational costs near the start of the academic year and government-administered increases in medicine and health care costs, neither of which seems to constitute any persisting trend, increases in housing and construction costs and transportation costs were still major drivers behind the rise of inflation during August and September. These unanticipated and significant trends, together with base effects generally becoming less favourable, have raised concerns about the possibility of renewed inflationary pressure amidst a loosening monetary environment.

https://i2.wp.com/www.joneslanglasalleblog.com/APResearch/wp-content/uploads/2012/10/Picture_08Oct2012_2.jpg?w=700

Is inflation back?
Perhaps the best way to look at this is to examine whether recent trends in the CPI, particularly in regards to housing/construction and transportation costs, have been the result of cost-push or demand-pull inflation. We think it has been mainly the case of the former. In fact, administered fuel prices jumping 11.6 per cent from end-June to end-September, following increases in global oil prices, seems to be a more convincing cause of higher inflation than the moderate increase in demand for rental apartments and construction activity mentioned in the media recently.

In short, we do not think inflation risks have returned to alarming levels as yet. Broadly speaking, external and domestic demand conditions are still relatively weak, as demonstrated by slowing prices of raw materials and declining import prices. As such, this will likely limit any inflationary pressures for the rest of the year.

Implications for real estate
While we have not noted any significant broad-based effect of inflation on the average management fees or service charges quoted by owners of existing properties, volatile inflation may be bad news for numerous commercial and residential projects currently under construction. Although rising prices have ceased to be a major threat to real estate developers over the past two quarters, the current economic uncertainties indicate that inflation may still be volatile over the short-term and must be closely watched.

Most baseline economic forecasts would point to a rise, but not a jump, in inflation in the fourth quarter of 2012.

About the author
Trung Thai is the Manager of Research for Jones Lang LaSalle in Vietnam and is based in Ho Chi Minh City.

Read more under Jones Lang LaSalle’s
Asia Pacific Real Estate Blog

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Reading Time: 3 minutes

By Trung Thai

Unlike its peers in the Asia Pacific region, Vietnam usually releases economic data before the close of the reporting period. CPI readings are among the earliest data to be released. The latest batch of data from the General Statistics Office indicates that inflation in Vietnam accelerated to 2.2 per cent months-on-month in September, the fastest pace that had been seen in 16 months, at a time when everybody thought price rises of 2 per cent a month were a thing of the past.

Reading Time: 3 minutes

By Trung Thai

Unlike its peers in the Asia Pacific region, Vietnam usually releases economic data before the close of the reporting period. CPI readings are among the earliest data to be released. The latest batch of data from the General Statistics Office indicates that inflation in Vietnam accelerated to 2.2 per cent months-on-month in September, the fastest pace that had been seen in 16 months, at a time when everybody thought price rises of 2 per cent a month were a thing of the past.

https://i1.wp.com/www.joneslanglasalleblog.com/APResearch/wp-content/uploads/2012/10/Picture_08Oct2012_1.jpg?w=700

Figure 2 shows that, barring seasonal increases in educational costs near the start of the academic year and government-administered increases in medicine and health care costs, neither of which seems to constitute any persisting trend, increases in housing and construction costs and transportation costs were still major drivers behind the rise of inflation during August and September. These unanticipated and significant trends, together with base effects generally becoming less favourable, have raised concerns about the possibility of renewed inflationary pressure amidst a loosening monetary environment.

https://i2.wp.com/www.joneslanglasalleblog.com/APResearch/wp-content/uploads/2012/10/Picture_08Oct2012_2.jpg?w=700

Is inflation back?
Perhaps the best way to look at this is to examine whether recent trends in the CPI, particularly in regards to housing/construction and transportation costs, have been the result of cost-push or demand-pull inflation. We think it has been mainly the case of the former. In fact, administered fuel prices jumping 11.6 per cent from end-June to end-September, following increases in global oil prices, seems to be a more convincing cause of higher inflation than the moderate increase in demand for rental apartments and construction activity mentioned in the media recently.

In short, we do not think inflation risks have returned to alarming levels as yet. Broadly speaking, external and domestic demand conditions are still relatively weak, as demonstrated by slowing prices of raw materials and declining import prices. As such, this will likely limit any inflationary pressures for the rest of the year.

Implications for real estate
While we have not noted any significant broad-based effect of inflation on the average management fees or service charges quoted by owners of existing properties, volatile inflation may be bad news for numerous commercial and residential projects currently under construction. Although rising prices have ceased to be a major threat to real estate developers over the past two quarters, the current economic uncertainties indicate that inflation may still be volatile over the short-term and must be closely watched.

Most baseline economic forecasts would point to a rise, but not a jump, in inflation in the fourth quarter of 2012.

About the author
Trung Thai is the Manager of Research for Jones Lang LaSalle in Vietnam and is based in Ho Chi Minh City.

Read more under Jones Lang LaSalle’s
Asia Pacific Real Estate Blog

Do you like this post?
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