Controlling inflation in 2021: Facing many unfavourable factors

According to experts, the increase in global oil prices will put pressure on inflation. Photo: S.T

Many impacts

According to the General Statistics Office, the consumer price index (CPI) in February 2021 increased by 1.52% from the previous month. It also was the highest increase of the price index in February in the last eight years. The reason is that Vietnam Electricity (EVN) ended its programme of supporting electricity prices for customers and the prices of food and public transport service increased during the Lunar New Year.

However, compared to the same period last year, the CPI in February increased by 0.7% only - the lowest since 2016. On average, in the first two months of 2021, the CPI decreased by 0.14% over the same period last year, and core inflation increased by 0.64%. Thus, the average CPI in the first two months of 2021 decreased by 0.14% over the same period in 2020. Core inflation in February 2021 went up by 0.48% over the previous month and by 0.79% over the same period last year. The average core inflation in the first two months of this year increased by 0.64% compared to the same period in 2020.

Forecasting Vietnam’s economic situation, the International Monetary Fund (IMF) said although the pandemic has had some lasting adverse effects, the economy was expected to recover strongly in 2021 as the normalisation of domestic and foreign economic activities continued. Fiscal and monetary policies are expected to support, albeit to a lesser extent than 2020, and inflation is forecast to be close to the Government's target of 4%.

Evaluating Vietnam’s economy in 2021, economist Ngo Tri Long said this year was unpredictable due to abnormal changes in the global market, especially the Covid-19 pandemic that has negatively affected the domestic economy and banking system. Therefore, price management should be prudent, flexible and proactive. Fiscal policy should be coordinated closely with monetary policy and other macroeconomic policies to control inflation according to targets. Simultaneously, continue to support and remove difficulties for enterprises and people affected by the Covid-19 pandemic.

Challenges from rising gasoline prices

In 2020, Vietnam's GDP increased by 2.91%, the lowest growth rate in years. One of the reasons that helped curb inflation in 2020 was the decrease of domestic gasoline prices plummeted in line with the world prices. This was the main factor reducing pressure on the price level from February to May 2020. Accordingly, the average domestic petrol and oil price in 2020 fell by 23.03% compared to the previous year, affecting the overall CPI decrease by 0.83%; the average gasoline price in 2020 declined by 0.95% over the previous year; and the average oil price in 2020 dropped by 31.21% from the previous year.

The Ministry of Industry and Trade and the Ministry Finance recently announced the adjustment of gasoline and oil prices applied from 15:00 on March 12. According to the ministries, the global gasoline price in the past 15 days continued its uptrend; the price of RON95 gasoline even increased to 76.39 USD/barrel, RON92 gasoline to 74.56 USD/barrel (the highest level in the past 14 months. The average contract price of petroleum products in the past 15 days jumped from 2.39% to 5.75%).

In Vietnam, the pandemic has been controlled; production, business, and daily activities have recovered in spite of many difficulties. In recent operating periods, to support production and business activities of enterprises and people's daily life as well as to limit the increase in gasoline prices, the Ministry of Industry and Trade and Ministry of Finance have used the BOG Fund at a high level. In this operating period, if the BOG Fund is not spent, the price of petroleum will increase compared to the current price by about 1,158-2,690 VND/litre/kg. To limit the increase in the domestic retail petroleum price, stabilising the price of goods after the Lunar New Year, and supporting the difficult life, production and business of people and businesses because of the pandemic, Ministry of Industry and Trade and finance ministry decided not to set up the BOG Fund for all gasoline products; and continue to spend high BOG Fund on all types of gasoline.

The management of gasoline prices aims to control inflation and stabilising the market right from the beginning of 2021, supporting people and businesses, and maintaining the price difference between E5RON92 bio-fuel and RON95 mineral gasoline at a reasonable level to encourage the use of bio-fuel to protect the environment in accordance with the Government's policy.

Although many have said that inflation in 2021 would be under control at less than 4%, it should not be subjective because the increase of global oil prices would put pressure on inflation, especially when Vietnam has had a trade deficit in gasoline and oil since 2015. The increase in world oil prices also negatively affects people's consumption and domestic enterprises' operations. Businesses, especially transport units, will be under pressure from increasing input costs as gasoline prices rise, which can lead to an increase in their product costs.