More concerns about inflation control in 2018

Target is hard to reach

According to the General Statistics Office, following the inflationary development during the second quarter, inflation remained high in the third quarter of 2018. As a result, after rising to 4.67% in the second quarter, total inflation declined slightly in the third quarter and remained at 3.98%. Overall inflation for the whole year of 2018 to the end of September is at 3.57%.

According to the assessment, the third quarter's inflation did not increase as in the previous quarter but still remained high, mainly due to the continued recovery of food prices and the continuous increase in petrol prices.

According to Assoc. Dr. Nguyen Duc Thanh, Director of the Institute for Economic and Policy Research (VEPR), an important cause for the CPI increases this year is that food prices recovered sharply over 2017. After the lowest prices in 30 years, pork prices in 2018 have rebounded sharply due to a supply-demand imbalance as many livestock producers have abandoned pigs following the recent oversupply of pork last year, the price of pork in quarter III has increased 200% over the same period in 2017. In addition, the report of the Institute also said that public services contributed to the increase in CPI in the first 9 months of 2018. In particular, the local adjustment of prices of medical services in accordance with the Ministry of Health's Circular No. 02/2017 / TT-BHYT has increased the price of this item by 18.26% and made CPI increase by 0.71%. Meanwhile, the implementation of the roadmap increased tuition fees, which also affected the CPI for education to increase by 7.02%, and increased the CPI total by 0.36%.

One issue of inflation that people are most concerned about is the price of gasoline. Normally, the increase of gasoline prices will be accompanied by a rise in other types of goods due to increased transportation costs. In the context of world energy prices continuously increasing, this will put great pressure on inflation in the coming time.

In the last quarter of 2018, when there are no longer any favorable supporting factors from 2017, according to forecasts of the Institute for Economic and Policy Research, inflation will probably exceed 4%, and a signal about that possibility is that gasoline prices have continued to rise sharply from the afternoon of October 6, 2018...

Increased inflationary pressures coupled with currency depreciation as the Federal Reserve repeatedly increased interest rates, this increased the SBV's ability to slightly raise its benchmark interest rates to achieve its 4% inflation target and stabilize exchange rates last year. However, "with the ambition of boosting government growth, we think that this level is still low," Assoc. Dr. Nguyen Duc Thanh said. According to the Institute for Economic Research and Policy Forecast, in the fourth quarter of 2018, inflation in Vietnam will be about 4.25%.

"The target level of 4% as in the past few years is difficult to achieve in such a disadvantageous context. The dollar strengthened as the Fed kept raising interest rates, making the VND / USD exchange rate continue to have relatively strong fluctuations like last time. The continued use of foreign exchange reserves or raising interest rates to stabilize the VND in the short term can lead to risks to the economy," said Assoc. Dr. Nguyen Duc Thanh, and continued by saying that the average inflation target of less than 4% could be achieved without any major shock in terms of energy prices in quarter IV.

Hard to control inflation in 2019?

Regarding the price of petrol in the coming time affecting inflation in 2018, Pham The Anh, National Economics University said that the rise in gasoline prices had a late effect on inflation. Inflation will increase sharply in the second, third and fourth months after gasoline price increases and lasts more than a year later. He also warned that inflation in 2018 could keep the 4% target, but from 2019 inflation control is more difficult.

Assoc. Nguyen Duc Thanh said that, “Inflation in 2019 will exceed the target of 4% set by the Government and the National Assembly in recent years. Rather than setting out goals that have not been well calculated, the government needs to take strong measures to curb the risk of rising inflation."

According to expert Pham The Anh, apart from the general increase in the price of petrol, the world is still a challenge to Vietnam's monetary management. "Monetary policy should be cautious on credit growth and money supply growth. This year it may not be necessary to boost credit to 15-16% as in previous years, we could increase by 10% to prevent inflation. Since the beginning of the year, credit growth has been about 10%, we do not necessarily try to promote the target of 16-17%, which would pose a risk to the economy. Meanwhile, the growth of Vietnam is not bad, there are a number of Government reports showing the plan has been exceeded. We have to be careful to balance other than macro-economic factors to prevent inflation," said Dr. Pham the Anh said.

The expert also warned that inflation has been very difficult to fight against, while preventing inflation is much easier. "When inflation happens, we have tightening monetary policies, but the price of anti-inflation is very high because one of the anti-inflationary measures is to raise interest rates. Increasing interest rates would kill businesses and reduce growth in the long run," Pham Anh added.

Regarding the administration of exchange rates, according to economist Nguyen Tri Hieu, we are now operating the exchange rate with a stable target, but stability should only be relative, because if the exchange rate is too stable while the Yuan is depreciating faster than the US dollar, Chinese goods will pour into Vietnam at very cheap prices. Chinese goods are already cheap. If the Yuan continues to depreciate against the dollar, the cheaper the goods, which will not only affect inflation but also make Vietnamese goods difficult to compete. Chinese goods, this is a huge risk to the economy. Therefore, the expert said that adjusting the dong exchange rate against the US dollar is necessary, and should adjust to the balance between the exchange rate band of the RMB against the dollar and the dong against the US dollar today.

Many experts also said that inflation is seasonal and tends to increase because inflation usually increases at the end of the year; the end of the year is also the period of credit increases and disbursement of public investment. Together with the uncertainty of the world economy, especially as oil prices may continue to rise, the trend of inflation in Vietnam will increase and the possibility of it spreading to 2019. Not to mention, factors suppressing inflation in 2018 (such as not raising electricity prices in 2018 ...) will be a factor to pressure inflation in 2019. Therefore, the administration of the government should be more cautious in monetary policy, tightening, credit control…