Mounting inflationary pressure requires Government’s flexible moves

The consumer price index (CPI) in the first four months of 2024 grew 3.93% from the same period last year, close to this year’s ceiling limit of 4 - 4.5%.

Nguyen Thi Huong, general director of the General Statistics Office (GSO), said inflation was kept under control during January - April despite strong pressure from international and domestic markets. However, inflationary pressure is still one of the noteworthy issues for the rest of this year.

Economist Nguyen Bich Lam held that external impacts on the Vietnamese economy remain considerable. They include the fierce strategic competition among major countries, conflicts in some sensitive regions, and escalating instability in the Red Sea, which may trigger inflation shocks in the world if supply chains are interrupted.

In the world, input material prices are high as the economic situation stays complicated. Meanwhile, Vietnam has to import a large volume of materials for manufacturing, so fluctuations in global commodity prices will affect businesses’ expenses and subsequently boost consumer goods prices.

Besides, he noted, the USD/VND exchange rate may keep rising in the time ahead because the US Federal Reserve (Fed) has yet to reveal any detailed plans on interest rate cuts due to high inflation. This may fuel import expenses and then domestic inflation.

Petrol and oil prices are also under pressure because global crude oil prices, as international experts forecast, are likely to hit US$100 per barrel due to unpredictable geopolitical volatility.

This factor strongly affected inflation during the last four months, Lam said, elaborating that among the main groups of consumer goods and services, transport saw the sharpest price hike of 1.95%, contributing 0.19% to the CPI growth.

Others adding to the inflationary pressure in the coming time include the adjustment of education and healthcare service prices, salary reforms, and the Government’s support programmes on economic recovery and public investment disbursement that will stimulate demand for some materials, along with unexpected natural disasters and epidemics.

Recent abnormal fluctuations in domestic gold prices have also affected people’s psychology while the depreciation of the Vietnamese dong will trigger inflation expectation, leading to higher goods prices, according to Lam.

Echoing the view, Nguyen Quoc Viet, deputy director of the Vietnam Institute for Economic and Policy Research, said though inflation was under control during the first four months, it may go up in the coming time. In particular, cost-push inflation is noteworthy.

To keep inflation under the ceiling limit, the GSO proposed the Government properly control goods prices in the face of inflation expectation impacts, and flexibly and harmoniously carry out the monetary policy to manage exchange and interest rates and to prevent adverse impacts on inflation and other macro-factors.

The Government should also consider promoting fiscal support solutions such as reducing taxes and fees to ease the burden of production and business expenses and bolster economic growth.

Lam said the State Bank of Vietnam has been showing flexible governance of exchange rates. Particularly, the country’s foreign exchange reserves are relatively abundant at present, about US$100 billion at the end of 2023. The State Bank will intervene to stabilise exchange rates if necessary.

Meanwhile, ministries, sectors, and localities will assess possible impacts of health and education service price hikes at certain points of time to make appropriate moves.

He also mentioned the guaranteed food supply and the recent sharp decline in global fuel prices, thus easing inflationary pressure.

The expert voiced his belief that with the Government’s inflation control experience for many years, Vietnam will still manage to keep inflation under the ceiling limit of 4 - 4.5%.