Vietnam was able to keep its inflation rate lower than the 4% target set by the government for 2022. The country is among those with a low inflation rate in 2022, while world inflation keeps increasing. In November 2022, the euro area had an increase of 11.1% in the inflation rate, and the US increased by 7.1% over the same period in the previous year.
In Asia, Thailand’s inflation in November 2022 increased by 5.6% over the same period in 2021; South Korea increased by 5%; Indonesia by 5.4%; China by 1.6%; and Japan by 3.6%. Many economies are experiencing a situation where inflation rates are higher than economic growth.
Three main reasons for Vietnam’s low inflation rate in 2022 were addressed in the seminar “Market development and price movement in Vietnam: outcomes in 2022 and outlook for 2023” recently held. Those three reasons are:
Vietnam's economy has not fully recovered yet. While the GDP growth of Vietnam in 2022 reached 8.02%, the average GDP in the period from 2020 to 2022 was 4.52%, much lower than the potential level of 6-6.5% that was assessed.
Mr. Nguyen Duc Do, Vice director of the Institute of Economics-Finance under the Academy of Finance, explained that the GDP growth rate indicated an overcapacity, leading to enterprises being unable to increase prices.
Vietnam was able to cope with the rising gasoline prices. The Vietnamese government stabilized the USD/VND exchange rate and reduced the environmental protection tax on petroleum. Those were the methods taken against the negative impact of the rising gasoline prices globally.
Vietnam implemented price controls on several items, such as medical services, education, and electricity.Mr. Do assessed price control as a factor leading to success in keeping the inflation rate low in Vietnam.
In 2023, the global situation will maintain its complicated and unpredictable development. The global inflation rate will stay high. Tight monetary policy, prolonged interest rate hikes, and a decline in the currency’s value in many regions and countries will reduce production in many industries.
“Vietnam's inflation in 2023 may exceed the 4.5% threshold. The main reason is because of the delay of the recovery package, socio-economic development and inflation in important partner economies may remain high next year,” forecasted Mr. Ngo Tri Long.
Agreeing with this point of view, Assoc. Prof. Dr. Dinh Trong Thinh, Academy of Finance, said that in 2023, inflation of the world economy is forecasted to remain at a high level of about 6.5%, thereby greatly affecting the movement of commodity prices and inflation in Vietnam.
Along with that, China’s gradual lifting of the blockade order may increase production, increase pressure on the price of gasoline and input materials for world production, and increase inflationary pressure.
However, Mr. Dinh Trong Thinh also said that several factors could reduce Vietnam's inflation pressure in 2023.
First, Vietnam's economy has adapted to the state of living with the pandemic while boosting production, recovered strongly last year, and will continue to adapt to economic and social fluctuations in 2023.
Second, deposit rates and lending rates of commercial banks have tended to increase in recent years. To support businesses in the economy to recover and develop, the State Bank (SBV) has taken measures to provide cheap capital for a relatively long time to commercial banks, along with requirements for commercial banks to cut costs to stabilize and lower the interest rate level of the economy.
In addition, the gradual lifting of the blockade order in China to prevent the COVID-19 pandemic can increase production and promote the expansion of the supply of input materials and components at reasonable prices for manufacturing.
At the same time, promoting the export of goods and accessories by Vietnamese enterprises with low logistics and transportation costs will help reduce inflation pressure.
Compiled by VietnamCredit
