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July 24, 2008

Vietnam : Petrol price hike may trigger domino effect
The recent 30 percent rise on petrol price will trigger domino effect on Vietnamese economy, and is likely to hurt its efforts to fight inflation, China’s Xinhua quoted analysts and industry insiders as saying.

Vietnamese Ministry of Finance raised the retail price of A92 petroleum, most commonly used by motorbike drivers in Vietnam, to 19,000 Vietnamese dong (VND) ($1.2) per liter from previous 14,500 VND ($0.9), on Monday.

The prices of diesel and kerosene went up by $0.12 and $0.36 respectively to $0.95 and $1.2.

The price hike hit sectors that consume fuel. Local fishermen, who have already struggled to lead a life, now meet even greater difficulties. In some southern coastal provinces like Bac Lieu, half of the fishing vessels are left idle because their owners cannot afford to buy petrol or necessary equipment.

Taxi drivers also have a lot to complain. "I have to pay an extra $120 every month for fuel after the price hike. It is unbearable if the taxi fare stays the same," said Duan, a taxi driver. "I hope the government could allow us to raise taxi fare soon."

Analysts said the price hike will trigger a domino effect, first on fuel-consuming sectors like fishing, taxi, bus, railway service, and then spreading to almost everything in the market as Vietnam is a country on the motorbike.

With a dense population of 85 million, the country has 17 million motorbikes. In cities, almost everyone rides a motorbike while bicycle is only ridden by students.

Prices of daily necessities like vegetables, coffee, noodle soup will all increase as shop owners need to ride motorcycles to go around to buy raw materials, said analysts. Higher petrol cost surely adds to their production costs.

Following the petrol price increase, its impact on Vietnamese companies was immediately shown in the local stock market, which has just slowly recovered after the downward plunge for months. The VN-Index Wednesday fell 12.29 points, or 2.68 percent to close at 445.59 points. It was the third falling session from Monday.

Worrying companies would meet difficulties after the unexpected sharp rise in the petrol prices, many investors sell their shares to get money. The market is overwhelmed by selling orders, according to a local security company.

The petrol price surge is surely to push up the Consumer Price Index, and the direct impact will be as big as 0.9 percentage points on the CPI, Nguyen Tien Thoa, head of the Price Regulation Department under the Vietnamese Ministry of Industry and Trade was quoted as saying by the Saigon Times Daily.

Oil products account for 3.08 percent of the commodity basket used to calculate the CPI, as the price rise about 30 percent, its direct impact will be some 0.9 percent, he said.

However, July's CPI will not be affected, as the price samples were taken before July 20. Its effect would be shown in August figures.

In Vietnam, CPI surged by 20.34 percent year-on-year in the first six months. Fighting inflation has been put on top of local government's agenda since the second quarter this year.

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