by NGOC ANH 03/05/2022, 02:36

Vietnam's inflation to remain manageable

Although some risks may cause Vietnam’s inflation to heat up, it will remain manageable in 2022.

Vietnam's headline CPI in the first quarter of 2022 increased by 1.92% YoY. 

Vietnam's headline CPI in the first quarter of 2022 increased by 1.92% YoY. Core inflation tends to be similar to headline inflation, with the average core CPI increasing by 0.81% over the same period in 2021.

In the first quarter of 2022, the main factors affecting CPI included: 1) food prices decreased by 1.2% YoY, making headline CPI go down 0.26 ppts; 2) construction materials prices rose by 8.08% YoY because of increased cement, iron, steel, and sand prices in line with surging input costs. As a result, headline CPI increased by 0.16 percentage points; 3) Domestic gasoline prices increased by 48.81% year on year, contributing to a 1.76 percentage point increase in headline CPI; 4) Gas prices increased by 21.04% year on year, contributing to a 0.31 percentage point increase in headline CPI; 5) Educational service prices decreased by 4.24% year on year, causing headline CPI to fall by 0.23 percentage points as some provinces and centrally-run cities exempted part or

Mr. Tran Duc Anh, Head of Macro and Strategy of KB Securities, believes rising hog prices at the current low may put enormous pressure on inflation in the coming months. In particular, inflation pressures will likely increase in the second quarter before cooling down in the second half of this year due to growing domestic demand and surging commodity prices worldwide.

In the short term, Mr. Tran Duc Anh said domestic petrol and oil prices would remain high but not heat up because:

First, IEA member countries, including the United States, will release a total of 240 million barrels of oil from their reserves over the next six months in order to lower energy prices in the context of Russia-Ukraine conflict that shows no signs of abating.

Second, the balance of the Petroleum Price Stabilization Fund (BOG) in early 2022 was over VND900 billion. Therefore, there is still room for the Ministry of Industry and Trade to continue stabilizing petrol prices.

Third, the Government has been trying to stabilize the petroleum market by passing a resolution to reduce the environmental protection tax rates on petroleum, oil, and grease until the end of 2022, helping reduce the average consumer price index (CPI) in 2022 by an estimated 0.76%-0.85%. Domestic retail fuel prices in the last three quarters will follow the adjustment on March 11. In the base case scenario, fuel prices should cool down, assuming the deescalation of the war in Ukraine in late 2Q22.

Mr. Tran Duc Anh forecasts pork prices may rise to VND60,000-70,000/kg thanks to the recovery in consumption amid dwindling pork supply due to slow pig re-herding in late 2021 and early 2022 due to African swine fever, high bran prices, and low pork prices. However, pork prices will unlikely reach their peak in 2020 thanks to the Government's priority of boosting domestic supply.

Despite the appearance of risk factors that may cause inflation to heat up in 2022, Mr. Tran Duc Anh expects Vietnam's inflation to remain manageable at 3.8% for the whole year 2022, underpinned by: (1) supportive monetary policy of the State Bank that helps stabilize the M2 money supply and alleviate pressure on inflation; (2) stable commodity prices, especially petrol prices, thanks to member nations of the International Energy Agency (IEA), including the US, releasing 240 million barrels of oil from strategic reserves over the next six months. Besides, in the base case scenario, the Russia-Ukraine conflict is expected to cool down by the end of the second quarter, helping to ease supply shortages.