Inflation will increase but not too much

Nguyen Ba Khang, Deputy Director of the National Financial Supervisory Information Center under the National Financial Supervisory Commission

Inflation is forecasted to increase from 2 to 2.2%

In recent times, the increase in gasoline prices is clearly a major obstacle to price management and inflation control, because gasoline is the main input for many goods and services, especially in the transport sector.

Therefore, an increase in gasoline prices is means an increase in inflation. Assessing the situation of inflation control in recent years, Khang said that since 2015, inflation had been controlled, ranging from 2-3%. Accordingly, core inflation only fluctuated from 1-2%, so the overall inflation was only about 2.6%. This was a good level for a developing economy like Vietnam.

Notably, inflation control in recent years has been implemented and coordinated very well, creating a foundation to create conditions for Vietnam's economy to withstand external price shocks.

As soon as the economy recovers, the supply of food will also become more abundant, the support policy on price stabilization will partially offset the impact of inflation in the short term. However, the sudden increase in world oil prices since the end of February has had negative impacts on inflation control.

Forecasting inflation in the first quarter of 2022, Nguyen Ba Khang said the reduction of VAT and some goods under Resolution 43/2022/QH15 to stimulate demand in the current context had contributed to price stabilization and controlled inflation in some industries.

However, the surge of oil prices masked the positive effects of the support package on reducing VAT for some goods and services. The oil price was also the main reason for the increase in inflation in the first two months of the year.

According to the calculations, the average inflation in the first quarter of 2022 compared to 2021 might increase in the range of 2-2.2%. This development was also in the long-term trend of inflation because the core inflation was still at a low level, thereby creating positive factors to offset the sudden increase in gasoline prices in the near future.

“In the context of increasing pressure, together with the start of bringing a large-scale economic recovery package to life, it would certainly promote large aggregate demand, creating pressure on inflation. However, this pressure would be slightly slower due to policy lag. According to our observations, this inflation cycle would be different from previous inflation cycles because aggregate demand increased too quickly, higher than the potential output of the economy, the difference in output was a factor causing inflationary pressure. Inflation this time was caused by the shortage of basic goods for production. Hence, inflation will increase but not too much,” Khang said.

Scene of the talk

Inflation does not cause an increase in gold prices and exchange rates

Referring to whether the fluctuation of gasoline prices affects inflation, causing gold prices and exchange rates to increase, the Deputy Director of the National Financial Supervisory Information Center said that gold prices always tended to increase in the short term. When inflation increased, investors would shift to other asset channels such as gold or real estate, but inflation was not the main reason for the increase in the gold price.

The exchange rate of Vietnam did not depend too much on inflation. If you look closely, it could be seen that currently, inflation in Vietnam was lower than in the US. The inflation factor that puts pressure on the exchange rate was now completely different.

Khang also said that stabilizing the exchange rate in our current context was not a concern because, in the past, we created a foundation with many favorable factors to stabilize the exchange rate. Accordingly, the operating method had made the supply and demand of foreign currencies more stable while foreign exchange reserves increased very quickly, which facilitated monetary policy and exchange rate management in 2022.