Inflation forecast to increase slightly this year

Monday, 2019-02-18 16:41:26
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A slew of factors will likely push up CPI for 2019.
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NDO - A series of factors will be the key drivers of Vietnam’s consumer price index for 2019, which is projected to be a bit higher than last year.

According to the Party Central Economic Commission forecast, the consumer price index (CPI) for the Vietnamese economy in this year will climb by 3.6-4% against last year, tantamount to the 4% projection of the International Monetary Fund and the World Bank.

In 2019, the rate sat at 3.54% on-year and the government expected that it would stay at about 4% this year.

The commission stated in its recently-released book on Vietnam’s economic performance in 2019 that the pressure for the CPI in Vietnam in 2019 is forecast to come from concerns about increases in the prices of items that are managed by the state.

Last year, in order to control inflation, the government delayed the application of a new plan on inflicting environmental taxes on petrol and postponed a hike in power prices, while truncating healthcare services.

“However in 2019, when a climb in the prices of these items will not be able to be delayed any longer, there may be risks for a climb in inflation,” said the book.

As of January 1, 2019 Vietnam has increased the environmental tax for petrol. This will likely expand the price of fuel in the local market in this year by 15% as compared to last year and directly cause a 0.65% increase to inflation in 2019.

According to the Party Central Economic Commission, it is expected that this year, there will likely be big droughts caused by El Nino, badly affecting the operation of hydropower plants. It is estimated that the additional costs paid by state-owned Electricity of Vietnam (EVN) for the natural calamities in 2018 and 2019 will be about VND20.735 trillion (US$901.52 million).

In order for EVN to operate profitably, there will likely be a rise in electricity prices in 2019.

“If there is a 5% hike in electricity prices for public use, the inflation rate will grow by another 0.13%,” said the book. “In addition, the hike in power prices will also result in a rise in prices of many other items in the market, because electricity is an indispensable input for production and livelihood.”

Furthermore, under the Ministry of Health’s Circular No.39/2018/TT-BYT which took effect on January 15, 2018, the price of healthcare services in all hospitals will climb in 2019. It is estimated that the price of the healthcare service group, which is one of the 12 groups used in Vietnam to calculate inflation, will grow 15%, creating a 0.6% rise in 2019’s inflation.

Meanwhile, 2019’s inflation this year will also be driven by a climb in the price of educational services. Under the government’s Decree No.86/2015/ND-CP on collecting and managing school fees from 2015-2021, the price of educational services will increase 10% in 2019, generating a 0.5% rise in inflation this year.

In addition, according to the commission, the price of fresh foodstuffs is expected to increase 6.5% this year, making inflation rise by 0.35-0.4%.

Spain-based FocusEconomics, which provides economic data for organisations and institutes in hundreds of nations worldwide, stated that the State Bank of Vietnam has left its key monetary policy tool unchanged since 10 July 2017, when the refinancing rate was lowered by 25 basis points to 6.25% to fuel demand for credit and bolster private consumption.

“On average, our panelists expect the refinancing rate to end 2019 at 6.38% and to end 2020 at 6.30%,” said a FocusEconomics bulletin released recently.

The Asian Development Bank has forecast that the inflation rate in Vietnam will be 4.5%.

The on-year inflation rate of Vietnam last year increased 3.54%. In January, 2019, it climbed by 2.56% on-year, and 0.1% on-month.

Inflation eased for housing and construction materials (0.94% versus 1.14% in December) and household appliances and goods (1.35% against 1.36%), while transport prices fell sharply (-3.95% versus 0.21%).

Meanwhile, prices rose faster for both food (2.06% against 2.01%), and garments, footwear and hats (1.73% versus 1.68%).

Annual core inflation, which excludes volatile items, went up to 1.83% from 1.70% in December. On a monthly basis, the CPI edged up 0.10%, following a 0.25% fall in December.

The inflation rate in Vietnam averaged 6.35% from 1996 until 2019, reaching an all-time high of 28.24% in August of 2008 and a record low of -2.60% in July of 2000.