Inflation storm forecast this year

Compiled by Thiên Lý

There is a serious threat of inflation this year with several factors being in the mix, analysts warn.

Ngô Ngọc Dung, a housewife in HCM City’s District 7, said in recent times she has to spend at least VNĐ300,000 (US$13) a day to buy the things required for making food for her four-member family.

“The cost is much higher. This is because the prices of all kinds of goods from vegetables to meat have gone up. A bowl of phở is now VNĐ8,000 higher than before Tết (lunar New Year).

“A few months ago I needed only VNĐ200,000 (US$9) for my family’s daily meals.”

The owner of a grocery in District 7 agreed with Dung, saying that after Tết retailers like him were informed by suppliers that they would increase the prices of many essential items like milk, processed foods, rice, and noodles.

Food processing companies said they have had to work out production expenditure again since the costs of inputs have gone up sharply.

Nguyễn Thị Oanh of the General Statistics Office (GSO), said in the first two months of the year prices are up 1.68 per cent year-on-year with transportation prices rising by 15 per cent, food and foodstuffs by 2.37 per cent and tobacco by 2.48 per cent.

Analysts said inflation has hit many economies around the world, with the situation going from bad to worse, and Việt Nam is no exception with an inflation storm expected in the near future.

In the first week of March, the global prices of many goods increased sharply, with fuel products and coal rising by 75 per cent and crude oil by 32 per cent.

The prices of farm products followed with wheat prices rising by 35 per cent, corn by 12 per cent and milk, butter and sugar by 8 per cent.

Among commodities, metal prices have surged, with nickel, for instance, increasing by 20 per cent, aluminium by 15 per cent and iron ore by 15 per cent.

Lithium is up 600 per cent.

Supply chain disruptions due to the pandemic and now the tensions and sanctions by the US and EU on Russia have severely affected the global prices of fuel and raw materials.

Oanh said, “Global prices of raw materials for various industries have increased sharply, affecting domestic prices.”

Many industries in the country still rely on imported raw materials, which in fact make up 37 per cent of their requirements, she said.

On March 11, the price of RON 95 petrol was hiked to VNĐ30,000 per litre.

Analysts estimated that fuel accounted for 2-3.5 per cent of production costs.

In Việt Nam, an adjustment of 1 per cent in material prices would raise the selling prices of finished products by 2.06 per cent, thus bringing inflationary pressure.

It is also estimated that a 10 per cent rise in petroleum prices will increase inflation by 0.36 per cent.

Analysts point out that another reason for the sharp rise in the consumer price index (CPI) is “imported” inflation – because of increases in the prices of imports – due to the high degree of openness of Việt Nam’s economy to the world.

The degree of openness, also known as the Impex rate, is measured by the size of imports and exports, and helps analyse the impact of trading a country’s social and economic situation.

Việt Nam’s import-export turnover as a ratio of GDP is now 200 per cent.

Signs of imported inflation have been stark since the beginning of this year as the prices of fuels and raw materials and components increased sharply.

The country imported iron and steel worth US$11.76 billion last year besides iron and steel products worth $5.2 billion.

These imports will impact the prices of building materials in the country.

Việt Nam’s imports rose by 15.9 per cent in the first two months of this year, and exports by 10 per cent.

The increase in imports was due to the increase in prices rather than volumes, with imports of some products such as metals, cashew, coal, and gas even falling.

Analysts said the strong economic recovery in many countries including Việt Nam has also contributed to the inflationary pressure.

With aggregate demand rising sharply, the prices of raw materials and commodities have jumped, exacerbated by the disruption in global supply chains due to the COVID-19 crisis and Russia-Ukraine conflict. 

In the first two months of this year, retail sales of goods and services in Việt Nam rose to VNĐ876 trillion, up 1.7 per cent year-on-year.

The VNĐ350 trillion stimulus package to revive the economy approved by the National Assembly is expected to add to the inflationary pressure by sharply increasing money supply.

Then there are the loosened monetary and fiscal policies to promote recovery, which always cause inflation, experts said.

Generally, high inflation will affect production and cause social unrest, and of course in the current context slow down economic recovery.

Solution

Analysts said containing inflation is not going to be easy amid the strong economic recovery, domestic and global, and relentlessly rising prices of many raw materials and commodities.

The economic recovery and stimulus packages will push consumer demand up, putting pressure on prices.

To mitigate the problem, the Government has tasked the Ministry of Industry and Trade with closely monitoring global oil prices and minimise their impacts on the country’s inflation by working with the Ministry of Finance to consider price- and tax-related issues.

The ministries and oil companies have been instructed to properly use the Petrol Price Stabilisation Fund to better manage petrol prices and reduce their impact on consumer prices.

The Government decided in February to cut value-added tax on most goods and services from 10 per cent to 8 per cent until the end of this year.

This has made consumers and businesses happy.

It is expected to stimulate demand and help businesses survive.

Meanwhile, a proposal to cut the environment protection tax on fuel and lubricants was recently approved by the National Assembly Standing Committee.

As a result, the rates on gasoline were cut by VNĐ2,000 (US$0.088) per litre, on diesel, fuel oil and lubricants by VNĐ1,000 and on kerosene by VNĐ700 per litre.

The cuts have been taken effect from April 1 and last through this year.

With these adjustments, the prices of fuel and, thus, many other goods are expected to fall, easing the pressure on the CPI.

But analysts said these are only the short-term solutions.

In the long term relevant ministries and agencies should closely monitor global price movements and inflation to ensure timely measures are taken domestically to keep prices steady, they said.

They also stressed the need for them to keep an eye on the supply of goods and commodities to effectively manage domestic production and balance local supply and demand.

They called for stepping up production of inputs like fuel and steel and other construction materials and putting in place price stabilisation measures.

They said industry should use more domestically sources inputs to reduce imports, especially those prone to big increases in prices globally.

Monetary policies should also target inflation, they said.

The State Bank of Vietnam should keep exchange rates steady, with adjustments carefully considered to encourage exports and restrict imports, they added. VnExpress News