Inflation may slow to single digit, funds say

Inflation will probably slow to less than 10% in 2009 for the first time in more than a year, two fund managers told investors in research notes.

Inflation has been in double digits since November 2007, and in August 2008 reached 28.3%, the highest since at least 1992. The pace has slowed for the past five months, easing to 17.5% in January, the lowest level in almost a year.

The government said last year its focus was to slow inflation to a single digit by the end of 2009. The slumping global economy should ensure that the goal is reached, even as authorities shift their priority to stimulating flagging economic growth by cutting interest rates, Vinacapital Investment Management Ltd. and Dragon Capital said.

“Deflationary trends globally have ended inflation’s reign as the issue of the day,” wrote Pham Do Chi, deputy managing director at Vinacapital, in a note posted on the fund manager’s website. “Unless there is an unexpected improvement in the economic situation, 2009 should see relatively low consumer price index growth, in single digits.”

The economy expanded 6.2% last year, the slowest pace since 1999, and the government is targeting a 6.5% expansion this year. Other forecasts are lower, with the International Monetary Fund expecting 5 percent and CLSA Asia-Pacific Markets giving a 3.5% figure.

The global recession is “raising concerns that the economy’s cooling could become a freeze,” Dragon Capital said in a note on the fund manager’s website. “Market consensus is converging on a view of a single digit year-on-year consumer price index by midyear.” (Bloomberg)