Vietnam is facing a new enemy and its name is inflation. Late last week, for the second time in a month, the government changed its inflation target as the continuing increase in prices is slowly but tightly driving the Vietnamese economy down. From the targeted inflation cap of 15% expected in early June of this year, it has been adjusted to 17%. Compared to December of 2010, inflation as of June of 2011 has increased to 13.29%, an equivalent of 22.6% rise year-on-year. This makes the initial 15% target “virtually unrealistic.”

According to Do Thuc, General Director of the General Statistics Office (GSO), there are several factors involved for the possible inflation explosion in the coming months. Increased prices of global input materials, food, fuel, and natural disasters are just some of the foreseen circumstances of inflation in Vietnam.

Even if the provisions stated in the governmental Resolution 11/NQ-CP on stabilizing the macro-economy and controlling inflation were strictly followed, inflation would still be at a minimum of 16%, added Thuc.

Because of this, the government last week reaffirmed its intentions and efforts to tighten (further) its implementation of monetary and fiscal policies. This includes an annual credit growth limitation of 20% and a money supply growth limited to 16%.

According to Minister and Chairman of Government Office Nguyen Xuan Phuc, Vietnam has not yet considered loosening its monetary policies. This statement was contradicted by the director of the GSO’s Price Statistics Department Nguyen Duc Thang, who expresssed his concern and fear that inflation would spiral out of control if credit increased to 20%.

In fact, several international financial institutions have made their own forecast of Vietnam’s inflation, predicting it to be even higher than the adjusted cap of 17%. Barclays Capital issued an official report two weeks ago, stating that Vietnam’s inflation would reach an all-time high of 22-23% by July or August due to increase in commodity prices.

The consumer sector is seen as one of the major factors for the increase of inflation rate in Vietnam. But on the brighter side, inflation is expected to go down by September. This in turn is due to slower credit and money growth.Inflation is expected to stabilize at 18% for the whole of 2011.