Vietnam's inflation reaches its peak: analysts

Vu Hoai Wednesday | 05/24/2023 13:03

Public investment will still be the main growth driver in 2023. Photo: Quy Hoa

Loose monetary policy, financial support packages, and increases in electricity prices have raised fears of inflation. But...

Electricity prices increased by 3% from May 4, 2023, with each kWh of power costing VND1,920.37 (excluding VAT). The cost of doing business might go up as a result of the energy rise.

Businesses that use a lot of power to manufacture goods like paper, steel, cement, chemicals, and metallurgy may suffer. This could be deceptive. If companies charge customers more for their purchases in order to cover rising power expenses, the price of items will rise.

Is inflation concerning at this time given the tendency of monetary policy to ease, stimulus packages for public investment, and the constant infusion of social housing to stimulate the economy? 

Going through inflation

Vietnam's economy would reach its goal in 2023 even though inflation is not the major worry at that time. Despite the fact that power prices have risen by 3%, inflation is below 4.5%, said Pham Hoang An, Head of the Analysis Group of Thanh Cong Securities Company (TCSC). 

"The administration appropriately timed the increase in power prices to coincide with the peak in global and Vietnamese inflation worries. Significantly softer," he added.

Prices of essential goods that have a significant influence on inflation, such as pork, and gasoline, stayed low or even declined over the same time period as gasoline prices.

Despite the fact that the cost of power has gone up, the cost of input items has recently dropped dramatically, thus the production expenses of businesses are not expected to grow or even fall. Vietnam is lessening the strain of "importing" inflation from the rest of the globe thanks to the stable exchange rate between the VND and USD.

The most popular search term for the prevalent problem affecting the world economy in 2022 is "inflation." Every sector of the economy has been impacted by the worst inflation in decades, particularly in the US and Europe.

Despite being greatly impacted by the outside world, Vietnam will continue to be among the nations with moderate inflation in 2022 when compared to the global average. The average consumer price index (CPI) will rise by 3.15% in 2022 when compared to the previous year. 2021, which is less than the National Assembly's aim of roughly 4%.

In terms of the global economy, inflation has "passed the peak" in many nations and has drastically decreased. The US CPI for April climbed by 4.9% on average over the same month in 2022, which was less than the 5% expectation of analysts and the lowest increase in more than two years.

The US Federal Reserve has also signaled that it may soon stop raising interest rates after announcing the 10th consecutive interest rate hike at its latest meeting, raising the executive interest rate further, 0.25 percentage points to a target range of 5-5.25%.

In addition, in the statement after the meeting, the Fed no longer mentioned that "the Committee anticipates that some additional policy is necessary" to achieve the 2% inflation target as in its meeting in March.

Need more time 

Ignoring concerns about inflation, most economies around the world are facing the risk of recession. In Vietnam, GDP growth in the first quarter of 2023 was just over 3.32%, while the Government's target in 2023 is 6.5%, which is also becoming a challenge in the remaining quarters. In its recent macroeconomic update on Vietnam, Standard Chartered Bank lowered its GDP growth forecast for 2023 for Vietnam to 6.5% from 7.2% previously.

In the context of poor economic growth in the first quarter of 2023, the Government has made a series of moves to stimulate other growth drivers, namely consumption and private investment. Regarding consumption, the Government agreed to submit to the National Assembly a 2% reduction in VAT to stimulate consumption demand. Therefore, domestic consumption could be significantly improved in the last 6 months of 2023. On the private investment side, the State Bank of Vietnam continuously sent out the message of reducing interest rates to stimulate businesses to expand their investment. private.

According to TCSC statistics, lending interest rates of commercial banks have now decreased by 1-2% compared to the peak at the end of 2022 and this trend will continue in the last 6 months of 2023 to stimulate consumer demand and increase consumption. invest.

However, the supportive monetary and fiscal policies of the Government still need a certain time to penetrate to affect people's consumer psychology and the need to expand investment of businesses. effective immediately. Therefore, TCSC believes that public investment will still be the main growth driver in 2023, but more pressure will be shared by the consumption and private investment sectors.

On the business side, Mr. Mac Quoc Anh, Vice President, General Secretary of the Hanoi Association of Small and Medium Enterprises, said that the problem for businesses today is the market when both the export market and The domestic market is in trouble.

The second difficulty is related to financial resources, because the business plan of the enterprise is not feasible, it is very difficult for the bank to disburse. Along with that are the difficulties of human resource mobility and access to the technology of enterprises.

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