Vietnam tells companies to absorb cost rises

Vietnam announced tough measures to contain rampant inflation on Monday, warning companies they could be prosecuted for passing on higher commodity costs to customers.
The government will prosecute or revoke the licences of companies that increase the prices of goods without sufficient justification, part of a plan to freeze prices for the rest of the year on goods ranging from coal to public transport.
EDITOR’S CHOICE
Bulgaria reopens labour links with Vietnam - Jul-08
Bidders vie for Bulgaria plant - Jun-23
Pressure on currency hits Vietnam - Jun-27
Vietnam ready to raise rate further - Jun-15
Vietnam losing allure for investors - Jun-01
Hanoi raises rates amid inflation fears - Jun-10
The focus on energy follows efforts to control the cost of food, which accounts for two-fifths of Vietnam’s consumer price index. Inflation accelerated to 27 per cent in July, overtaking Sri Lanka as the fastest rate in Asia.
James McCormack, Fitch’s head of Asian sovereign ratings, said the announcement suggested “we will see further administrative controls rather than market-based controls” on inflation, which would do little to halt Vietnam’s excessive growth in money supply.
Vietnam is among a handful of Asian countries struggling with prices rising at an annual rate at or above 20 per cent, alongside Sri Lanka, Mongolia, Cambodia, Pakistan and Kazakhstan.
The surge in inflation is also seen as a test of the Communist government’s economic management skills as it seeks to engineer a soft landing for an economy that is showing signs of overheating.
Vietnam has been transforming itself from a backward and rural economy into one of Asia’s fastest-growing manufacturing centres and leading recipients of foreign direct investment, in sectors ranging from computer chips to oil and gas.
The ministry of planning and investment last week unveiled curbs on the construction of golf courses, which have been encroaching on agricultural land.
Vietnam’s was the first central bank in south-east Asia to raise interest rates this year, drawing praise last month from the Asian Development Bank.
However, many economists have warned that rates need to be raised further amid signs that foreign capital is continuing to pour into the country.
While the government indicated on Monday it could impose severe sanctions on companies that push up their prices because of higher costs, it has itself been trying to cut its ballooning subsidy bill by recently raising retail fuel prices.
As a result, Sherman Chan from Moody’s Economy.com said in a report last week that there was “a strong chance” of inflation reaching 30 per cent in the third quarter.