December consumer price index (CPI) is forecast to edge up 0.3 percent over November due to slow CPI rise in Vietnam’s two biggest cities, Hanoi and Ho Chi Minh City.

The CPI in December in Hanoi and HCMC is estimated to increase by 0.26 percent and 0.17 percent, respectively.

With the latest CPI data, the 2012 inflation rate in the two cities will probably be at 6.3 percent and 4.1 percent, respectively.

Thus, inflation in the two major cities this year is much lower than the double-digit rates in 2011.

From the data above, Vietnam’s inflation rate in 2012 will likely be at 6.8 percent, lower than the 8 percent target.

Inflation cycle already reached trough

However, the World Bank has warned about the return of inflation in Vietnam due to loose monetary policy earlier this year in its latest report on the growth prospects of the economies of East Asia and the Pacific.

WB said current inflation cycle in Vietnam has reached its trough.

A graph extracted from the report shows the CPI of regional countries from January 2007 to January 2012. 

The year-on-year headline inflation fell from 23 percent in August 2011 to 5 percent in August 2012 due to a fall in the price of food and foodstuff from 34 percent to 2 percent over the same period, and to tighter fiscal and monetary policies until earlier this year.

But prices in September jumped 2.2 percent, primarily on account of higher prices of medicine, health-care services, and petroleum products. Another factor was the cost of educational services, which increased due to higher back-to-school spending.

Year-on-year inflation stood a 7 percent in October 2012, signaling that inflation had bottomed out at 5 percent in August 2012, and will be on an upward trajectory until the first quarter of 2013.

Inflationary pressures may reemerge through the lagged effects of accommodative policies and heightened global food and oil prices.

The organization has recommended that Vietnam still needs to tighten monetary policy in case of such shocks, like soaring commodity prices.

WB has also lowered its growth forecast of Vietnam in the period 2012-2013 to 5.2 percent and 5.5 percent, lower than the previous forecast of 5.7 percent and 6.3 percent. In 2013, Vietnam's GDP growth is forecast at 5.7 percent.

According to the World Bank, the Vietnamese economy will continue to recover slowly though the banking and enterprise reform can support significant growth.