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Pressure of inflation in Vietnam increasing

Pressure of inflation in Vietnam increasing

Friday 01, 07 2022
The inflation pressure in Vietnam from now to the end of 2022 is very high. Experts stated that it would be a challenge to achieve the aim of 4% set by the National Assembly.

High inflation pressure

Faced with the effects of supply chain inflation, with the increase in world prices of raw materials and materials and a sudden rise in domestic aggregate demand, many experts predict that Vietnam's inflation in 2022 will be higher than the 4% set by the National Assembly.

supply chain inflation

According to Mr. Nguyen Bich Lam, former Director of the General Statistics Office (Ministry of Planning and Investment), three main factors will contribute to the inflation pressure in the Vietnamese economy in the coming time.

Firstly, supply chain inflation. That is the group of factors that create the highest pressure on inflation of the economy in the coming time. Vietnam's economy has a great openness, and its production depends a lot on imported raw materials, with a proportion of 37% of the cost of imported raw materials in the total cost of raw materials in Vietnam's economy. This rate in the processing and manufacturing industry - the main growth engine of the economy, accounts for 50.98%.

Secondly, the price of raw materials and fuel increased. According to Mr. Lam, petroleum is a strategic and vital commodity, accounting for 3.52% of the total production costs of the entire economy and 1.5% of total household consumption. When domestic gasoline prices increase by 10%, inflation will increase by 0.36%. In particular, domestically produced petroleum only accounts for 70-75% of the total petroleum supply in Vietnam. Domestic petroleum production depends much on crude oil imports, and domestic gasoline price fluctuations depend on world petroleum price fluctuations.

“For Vietnam's economy, petroleum has a deep and wide impact on industries and fields. It is forecasted that in 2022 the price of petrol will increase and stand at a high level, which will cause inflationary pressure and create a new high price level in the economy." Said Mr. Lam.

In addition, the prices of raw materials, industrial metals, fertilizers, animal feeds, and global food prices increased, exceeding the forecasts of many international financial institutions. Meanwhile, Vietnam's economy has a large openness, and domestic production depends heavily on imported raw materials and fuel.

Vietnam's economy

Third, aggregate demand spiked in the context of supply chain disruptions. The Government is planning to urgently implement the Socio-Economic Recovery and Development Program in 2022 - 2023. Along with the support packages of 2021 that are taking effect in all sectors of the economy, there will be a sudden spike in aggregate demand and a sharp increase in consumer demand for goods and services after a long period of being affected by the pandemic, increasing inflation pressure in 2022 and 2023.

Hard to curb

The inflation pressure in Vietnam from now to the end of 2022 is quite high. A factor that is forecasted to cause CPI to increase sharply is the price of raw materials at a high level, while Vietnam has to import most of the raw materials and materials for domestic production, thereby affecting production costs of enterprises, and product prices, etc. Petrol prices’ strong fluctuations will affect many other important commodities. Calculations of the General Statistics Office show that when the domestic gasoline price increases by 10%, the CPI increases by 0.36 percentage points.

In addition, the prices of food, which hold huge weight in the CPI basket of goods, are likely to rise again in the last months of the year when the COVID-19 pandemic is under control and people's consumption demand increases. Price adjustment of educational and medical services will also affect the CPI, especially the education service price index. The achievement of the 4% inflation targets as set out by the National Assembly will be a challenge to achieve, Ms. Oanh emphasized.

CPI basket of goods

According to Dr. Can Van Luc, a member of the National Monetary and Financial Policy Advisory Council, the biggest risk in the world right now is inflation. For Vietnam, Mr. Luc said that this year's inflation might double that of last year or more, about over 4%.

Mr. Luc analyzed that raising interest rates to curb inflation could affect the process of economic recovery. Therefore, the governing bodies are currently in a difficult position in considering whether to raise or not raise interest rates. Raising interest rates will help control inflation but restrain growth because capital for businesses will be tightened, affecting the economic recovery process.


Compiled by VietnamCredit

Vietnam Economy

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