Vietnam’s CPI could remain under control

Vietnam's February CPI increased by 1.42 percent year on year. 

The February CPI increased by 1.42 percent year on year and 1.2 percent when compared to December 2021. In the first two months of 2022, the CPI climbed by 1.68 percent on average over the same period last year, and core inflation by 0.67 percent.

The February CPI went up due to the increases in petrol prices, food prices, food stuffs, restaurant food and public transport services during the Lunar New Year.

In fact, the Ministry of Industry and Trade (MOIT) adjusted petrol and oil prices in February 2022 as follows: E5RON92 up VND960/liter; RON95-III up VND960/liter; Diesel Oil DO 0.05S up VND940/liter; Kerosene up VND750/liter; Fuel Oil 180CST 3.5S up VND780/liter. E5RON 92 and RON95-III prices have increased by 8.5% YTD and 7.9% YTD, respectively.

The MOIT tapped the Petroleum Price Stabilization Fund (BOG) by raising the subsidy provision for E5RON92 biofuel to VND250/liter and RON95-III to VND100/liter to stabilize domestic gasoline and oil prices in the context of surging imported petrol and oil prices. Domestic gasoline prices have continuously set new peaks, and this is the fifth adjustment in a row since early 2022.

KBSV believes domestic petrol and oil prices will go up in the short term due to: (1) swing fluctuations in global crude oil prices amid escalating Russia-Ukraine tensions; and (2) little room left for the MOIT to continue stabilizing oil and gas prices with only VND800 billion of the BOG left by early 4Q21. Besides, many petroleum trading enterprises had negative stabilization funds. Notably, the funds of Petrolimex (PLX) and PVOIL (OIL), with the leading market shares, were negative by up to hundreds of billions of Vietnamese dong.

The uptrend in gasoline prices continues, putting more pressure on Vietnam's inflation. According to the General Statistics Office, a 10% increase in gasoline prices may lead to a 0.34% gain in overall CPI.

Besides, the prices of steel and construction materials improved by 3.0% YTD and might continue to stay high given the growing steel demand for the urgent implementation of backlogged real estate projects in 2021 for timely handover and the prompt construction of large-scale public investment projects.

Meanwhile, pork prices are stable at VND55,000/kg due to weak consumption when many businesses, schools, and collective kitchens have not returned to normal, which should tame the CPI.

In 2022, KBSV forecasts pork prices to rise to VND60,000–70,000/kg thanks to the growing demand amid dwindling supply resulting from the slow re-herding in late 2021 and early 2022 caused by African swine fever, high bran prices, and low hog prices. However, pork prices are unlikely to approach the 2020 peak thanks to the government's boosted domestic supply. Accordingly, it maintains our 2022F CPI at 3.8%, which is lower than the target as set by Vietnam’s National Assembly for 2022.