Preventing “taking advantage” when petrol price increases

Economic expert Ngo Tri Long

Dear Sir, previously, on 6/10, the gasoline prices were adjusted to increase. This is the ninth increase in 2018. Could you please tell us about your evaluation about the effect of this wave on market prices and inflation in 2018?

In 2018, the National Assembly and the Government have planned to control the inflation rate below 4%. However, over the past nine months, the inflation rate has been at 3.57%. It means that inflation nearly approached the target of 4%, while it is still 3 months from now to the end of 2018. The National Assembly and the Government is still determined to ensure and keep the inflation rate under the target, but the problem is that with the current inflation along with gasoline prices continuing to rise, could we control the inflation as planned or not? I thought that to achieve this goal is a challenge. The Government is very determined but in the current context, an important variable for inflation was the price of crude oil in the world which was unpredictable.

The US President Donald Trump canceled the Iran nuclear deal so it results in the decision of embargoing on exporting oil from Iran. Meanwhile, this country was the largest producer and crude oil exporter in the world. Hence the embargo caused an increase in oil prices, while petrol prices depend on the supply and demand relationship. When supplies drop, prices increase. At the same time, according to the agreement of some countries such as Russia and some OPEC countries, they would not increase their production due to increased output would result in decreasing petrol price, because it was a major source of income for those countries in the past year and would lead to loss of revenue. The crude oil prices was below $US 90 a barrel and was expected to rise to around $US 100 a barrel next time, which would have a big impact on inflation in 2018. The increase of petrol price would impact on goods and services as well as affect on inflation in the last months of the year.

In the context of rising petrol prices, what should be paid more attention by the Government in order to control the inflation as planned, sir?

Petrol prices are an extremely important input for the economy, so the 9th increase of petrol prices in 2019 as well as continuing increases would have a direct and indirect impact on future inflation. For example, transportation, offshore fishing, oil-fired thermal power stations ... would be directly affected. In addition, there would be indirect impact through the transportation from production to consumption... Therefore, the increase of petrol price would cause some changes on the CPI. Not to mention, the US-China trade war also affects Vietnam. With the opening of the big economy, the exchange rate fluctuations in the direction of reduction would lead to an increased price for imported raw materials, affecting import costs and causing domestic production costs in the country to increase.

In terms of economic administration, there is a problem that needs to be avoided, that is the phenomenon of "taking advantage" of market prices. It means that when a commodity price increases, other commodities increase. Thus, the measure of the State should be vigilant and strictly control. Petrol prices are expected to continue to increase from now until the end of the year and into early 2019, it could reach $US 100 and this trend can clearly be seen. Therefore, this is a great warning and challenge in the economic administration of the Government.

Sincerely thank you!