Vietnam to keep inflation at 3 pct in 2021: HSBC

Vietnam's consumer price index (CPI) shot up by 1.52 percent month-on-month in Feb. Analysts attributed the hike to the increased food prices and transport costs during the Lunar New Year (Tet) holidays and the surge in power tariffs as Vietnam Electricity (EVN) ended its electricity subsidy in January.

The government had allowed electricity prices to be reduced for three months of 2020, from Oct. to Dec., to cushion the impact of the Covid-19 pandemic.

According to HSBC, while the electricity price rise was a one-off administrative adjustment, food and transport are worth watching closely since their weightings in the consumer price basket in Feb. were 34 percent and 10 percent, respectively.

Its analysts expected food prices to moderate significantly in 2021 after last year's 10 percent year-on-year jump.

In the first two months of the year, pork prices only rose by 0.7 percent year-on-year. However, "while it is encouraging to see slower growth in pork prices, soaring global grain prices are posing upside risks," the report 'Vietnam at a glance' noted.

Prices are expected to face some upside pressure from higher transport costs, with HSBC forecasting a 34 percent increase in Brent crude oil prices to $56 per barrel in 2021.

"That said, this is likely to be offset by slower growth in food prices, given its smaller CPI weighting."

Foreign exchange, another factor affecting inflation, is expected to remain steady in 2021.

But, all things considered, the inflation rate this year is expected to be around 3 percent, mainly reflecting the impact of moderating food prices, though rising oil prices and healthcare costs pose a threat, it noted.

The State Bank of Vietnam has a target of keeping inflation at no more than 4 percent this year, and so it is likely to maintain a steady monetary policy through 2021, it predicted.

"We expect the central bank to keep its refinancing rate unchanged at 4 percent."

Last year inflation was 3.23 percent, well below the 4 percent limit set by the National Assembly.