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Economic risk: Vietnam’s inflation to be higher in 2022

Economic risk: Vietnam’s inflation to be higher in 2022

Thursday 10, 03 2022
According to MB Securities Company, Vietnam's inflation tends to be higher in 2022, reaching about 3.5% to 4%.

Impacts from Russia - Ukraine tensions

Sharing his views on the influence of the Russia-Ukraine conflict, Mr. Hoang Cong Tuan, Chief Economist, MB Securities Company (MBS) said that the direct impact will not be large.

This can be explained by the fact that the two-way trade turnover between Vietnam and Russia as well as Vietnam and Ukraine account for a very small proportion of the total trade turnover of the country with the world (about over 6 billion USD compared to 300 billion USD). However, Vietnam is an open economy, so the inflation pressure is inevitable.

Impacts from Russia - Ukraine tensions

Vietnam is also a major importer of petroleum and petrochemical products. Therefore, a 10% increase in oil price will cost the economy about 600 million USD, while a 20% increase will cost the economy 1.2 billion USD. If oil prices continue to escalate, it will obviously have a significant impact on Vietnam's GDP growth.

The second aspect is the inflation factor of petrol and oil as well as goods related to transportation services, which are inputs of many manufacturing industries.

According to Mr. Tuan, petrol prices account for just over 3% of the CPI basket. If oil prices increase by about 10%, the effect on CPI will be about 0.2%. However, if the oil price increases by 20-30%, it will have a significant impact, especially when Vietnam's economy has just experienced the COVID-19 pandemic and is still in the recovery phase.

Disrupted supply may lead to higher inflation pressure

Vietnam's inflation pressure in 2022 will probably be higher than 2021, according to MBS’ chief economist.

In 2020 and 2021, the economic growth was slow, and in order to support the economy, the State Bank of Vietnam lowered the operating interest rate three times and maintained a good level of money supply, thereby creating a surplus for the economy.

the State Bank of Vietnam

Besides, there is the cause of the demand pull and cost push. As the economy reopens and the economic growth stimulus package is about to be deployed strongly in the coming time, the total demand of the economy will increase very strongly in 2022 compared to 2021.

Prices of fertilizer, steel, coal, food, and a wide range of basic commodities increase and global demand also increases. Meanwhile, supply cannot return quickly when the COVID-19 epidemic still causes global supply disruptions.

"The current tension between Russia and Ukraine is just adding fuel to the fire. Inflationary pressure is already there and inflation has actually occurred in the US at the highest level over the last decade.”

It is estimated that Vietnam’s inflation in 2022 may reach around 3.5% to 4%. However, the current tension between Russia and Ukraine is an unforeseen factor.

Talking about inflation, Mr. Ngo Viet Duc said that this is what central banks have to deal with. Recently, the Federal Reserve of the US FED has raised interest rates and in Australia, IBA also considers the possibility of raising interest rates.

general inflation

Regarding crude oil, Mr. Duc agreed that when oil prices rise, it will affect general inflation and input costs for businesses. However, looking at the positive side, according to some economists, assuming the price of crude oil increases by 10%, the demand for oil will decrease by 3%.

This means that rising oil prices could help the economy move towards cleaner industry. For example, people are accelerating the use electric cars or switching to models that use less oil. This can be an indicator of an economy moving in a better direction for the environment.

Source: vietnambiz

Compiled by VietnamCredit

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