Gasoline prices in Vietnam could rise by another 30 percent in the next few months, which in turn could drive inflation up, investment fund VinaCapital has warned.
Russia’s attack on Ukraine has caused global oil prices to rise by nearly 40 percent, and by 70 percent at one point, and this could add 1.5 percentage points to Vietnam’s inflation rate, Michael Kokalari, the fund’s chief economist, said in a recent note.
“The escalation to inflation from higher oil prices that we are envisioning would leave inflation in Vietnam at around 3 percent, which is still below the government’s stated maximum 4 percent inflation target for 2022”.
Gasoline prices were raised by 10 percent last week to a record VND29,820 ($1.30). They have risen by around 28 percent since the end of December.
But otherwise the Russia-Ukraine crisis is only likely to have a “modest” impact on the Vietnamese economy, given that direct linkages between Vietnam and Russia are fairly minimal, Kokalari said.
Russia accounts for less than 1 percent of Vietnam’s exports and imports, and 4 percent of tourist arrivals (pre-Covid), he added.
VinaCapital expects a spike in the value of the U.S. dollar to disrupt foreign exchange markets and prompt a 1-2 percent depreciation in the value of the dong.
But the fundamentals supporting the dong remain strong, such as rising FDI inflows and an imminent return to a trade surplus, it added.
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