Expected price hikes in education and health care could push up inflation in the second half of the year. - VNA/VNS Photo Quang Trung

Reports from the General Statistics Office show that the consumer price index (CPI) rose by 0.46 per cent in June, the highest June increase recorded in the past five years.

Compared with December 2015, the index has increased 2.35 per cent.

Addressing the conference on price movements, representatives of the Ministry of Finance's Pricing Management Department, expressed concern that inflation in the second half of 2016 will be under pressure by the State budget balance, continuous price hikes in health care and education services in accordance with market mechanisms, as well as the central bank's policies on regulating foreign exchange and interest rates.

Deputy director of the Ministry of Industry and Trade's Domestic Market Department, Nguyen Loc An, said global political volatilities and decreasing demand in importing countries would negatively affect prices of many products, including oil.

In the domestic market, price hikes in some cities and provinces are also expected as the country is nearing a season of storms and floods.

However, An expects prices will not go up strongly as the Government has instructed relevant agencies to prepare sufficient supplies.

The Government will also maintain reasonable price hikes in public services, An said, forecasting that the CPI this month will rise at the same rate as last month.

Economist Nguyen Tri Long suggested that authorities be cautious in regulating inflation in the coming months given unexpected factors that may cause inflation to rise in the second half of the year.

Besides the price hike of public services and adverse weather, Long said, a rising money supply, foreign exchange pressures and price hikes of imported products might be other reasons for the increase.

Long said the inflation control target might not be met if the money supply is not strictly controlled. State price management agencies must therefore pay due attention to inflation. Long suggested that in the future, money policies be co-ordinated closely with macro economic stability.

He also said some regulations must be adjusted to further tighten lending rules in order to avoid risks for real estate and financial markets.

SBV urges caution

The Governor of the State Bank of Viet Nam (SBV), Le Minh Hung, last week urged caution in price control, warning of great pressure to raise lending rates in the future.

Speaking at a Government teleconference, Hung said that aside from existing price control measures, prudent management of other macro-economic activities was also needed to avoid affecting interest rates.

While most of the capital for the economy comes from bank credit, the demand for raising capital through government bonds has also increased. Hence, proactive and flexible management is necessary to keep lending interest rates stable, he noted.

The six-month inflation rate at 1.72 per cent is assessed to be in line with monetary fluctuations since the beginning of the year, and price control measures during the period have proven effective.

Hung said the SBV would keep a close watch on movements in regional and international markets, especially in the European Union (EU) and the United States, and adjust monetary and exchange rate policies in a timely manner.

Regarding the United Kingdom's withdrawal from the EU (Brexit), the governor said the central bank immediately responded to the market's psychological reactions, helping minimise Brexit's impact on exchange rates, and rates were now stable.

It is still necessary to evaluate more comprehensively the indirect influence of Brexit, particularly the devaluation of major currencies like the British pound and the euro, he added. — VNS