Vietnam’s inflation target under pressure: experts
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Several economic factors including high commodity and fuel prices will make it difficult for Vietnam to keep its inflation within targeted limits this year, economists say.
The country’s consumer price index (CPI) in June increased 0.61 percent from May, the highest such increase in the last seven years, according to the General Statistics Office (GSO).
The CPI in June was 4.67 percent higher than the same month last year, and CPI in the first six months was 3.29 percent higher, the GSO said.
The National Assembly, Vietnam’s parliament, has set a target of inflation not rising beyond 4 percent this year.
Several economists believe that the target can be met but also express their concern over factors that can spoil set plans.
The rise in world oil prices is one factor. Crude oil is now at $72.94 a barrel, higher than the estimate of $70 when the parliament set the target.
Higher oil prices will see fuel prices rise, leading to a higher CPI, said economist Ngo Tri Long, former director of Research Institute of Market Price under the Ministry of Finance.
Vietnamese fuel prices in the first six months went up year-on-year by 13.95 per cent, resulting in a 0.59-percent increase in CPI, according to the GSO.
If global oil prices continue to climb, this year’s CPI increase will be higher than that of last year, Long said.
Other experts are concerned about the new environmental tax on fuel that is set to be imposed this October. The tax will certainly impact the average CPI this year, increasing it by 0.11-0.15 percent, Deputy Minister of Finance Vu Thi Mai said in March.
The tax will be discussed at a meeting of the Standing Committee of the National Assembly next week. Should it pass, it will affect the transportation and production costs of local goods, weakening their competitiveness, said Vu Vinh Phu, former chairman of the Hanoi Supermarket Association.
“The tax will certainly impact the average CPI this year, increasing it by 0.11-0.15 percent, Deputy Minister of Finance Vu Thi Mai said in March.”
Phu said he was also concerned about current commodity prices in the country. In local supermarkets, rice was being sold at VND16,000-18,000 ($0.70-0.78) per kilogram, 44 percent higher than their export price.
Sugar is being sold at VND21,000-23,000 per kilogram, twice as much as export price, Phu said. “If the retail prices of essential commodities keep rising, CPI will definitely be impacted,” he added.
Echoing Phu, economist Long said he believed that with pork prices being high in the first 6 months, they are likely to increase further in the second half of the year.
As the country is often hit by storms in the second half of the year, prices will climb up, making CPI increases even higher, Long added.
Within reach
However, Long also saw potential for achieving the National Assembly’s inflation target.
Thanks to new government policies starting this July, citizens will enjoy lower prices for certain health services, and the Prime Minister has ordered no increase in electricity prices for the rest of the year.
These are positive factors for keeping inflation in check, he said.
Vietnam’s control of inflation in the first half this year has been a notable positive achievement, said Dr. Vu Dinh Anh with the Economy and Finance Academy.
Although fuel prices will be higher, with good policy and management, the target of keeping CPI increase under 4 percent will “not be impossible,” he said
Vietnam’s GDP in the first half of 2018 increased 7.08 percent, the highest ever recorded in the same period since 2011. The Asian Development Bank estimates annual growth at 7.1 percent.
Questions & Answers
Q.What is the primary factor economists are concerned about for Vietnam's inflation target this year?
What is the primary factor economists are concerned about for Vietnam's inflation target this year?
Economists are primarily concerned that high world oil prices will lead to increased fuel prices domestically. This is expected to push up the consumer price index, making it harder to stay within the 4 percent inflation limit.
Q.How will the new environmental tax on fuel impact consumer prices if it passes?
How will the new environmental tax on fuel impact consumer prices if it passes?
If the new environmental tax on fuel passes and is imposed in October, it is expected to directly increase the average CPI by 0.11-0.15 percent. This will also affect transportation and production costs, potentially weakening competitiveness.
Q.What are some specific commodity price increases currently observed in Vietnam?
What are some specific commodity price increases currently observed in Vietnam?
In local supermarkets, rice is being sold 44 percent higher than its export price, while sugar is double its export price. These significant retail price increases for essential commodities are a concern for future CPI levels.
Q.What government actions are in place to help control inflation and potentially meet the target?
What government actions are in place to help control inflation and potentially meet the target?
New government policies from July will lower prices for certain health services, and electricity prices are frozen for the rest of the year. These measures are seen as positive factors for keeping inflation in check despite other pressures.