At the start of the year, the price shock of gasoline, food, medicine, fertilizer, etc. put pressure on people and businesses.

Pressure to raise prices: Gasoline becomes key factor

From the beginning of the year to March 2, the domestic retail gasoline price has been adjusted 5 times and has been rising continuously. Compared to the first adjustment period on January 11, the price of E5 gasoline increased by almost 2,918 VND/litre, RON95 gasoline by 2,958 VND/litre, diesel oil by 3,071 VND/litre… Petrol prices are expected to reach a new peak .

According to the General Statistical Office, the cost of gasoline accounts for about 37% of the total cost of raw materials of the entire economy. The high price of crude oil in the world, as well as the price of waste petroleum products, will have a negative effect on the economy due to high raw material costs.

At an inflation control seminar held by Customs Magazine on March 9, Mr. Nguyen Bich Lam, former director of the General Bureau of Statistics: A 10% increase in petrol prices causes inflation to rise by 0.36%. The consumer price index (CPI) in the first two months of 2022 rose by an average of 1.68% compared to the same period last year, the increase in gasoline prices increased the overall CPI by 1.63 percentage points.

Together with the sudden rise in prices of many other goods and materials, inflationary pressures for 2022 are assessed as “very high” by Mr Nguyen Bich Lam.

The first push, according to this expert, is the sudden surge in aggregate demand, reflected in positive retail sales in the first two months of the year, rather than the negative level seen in 2021. Specifically, over the next 2 years of the 350 trillion bailout package VND will stimulate aggregate demand, while the main cause of inflation is an increase in aggregate demand.

The second push is the high price of commodities when the Vietnamese economy relies on imported commodities. The third pressure is the disruption of the supply chain, which is the cause of the very high inflation in the world. The labor shortage makes companies spend more money to recruit employees, training also increases costs.

“Those are the factors driving inflationary pressures for 2022,” concluded Mr Lam.

Mr Nguyen Ba Khang – deputy director of the National Financial Supervisory Information Center under the National Financial Supervisory Commission, said: “The current period is different from previous inflation cycles. All previous inflation cycles have been caused by aggregate demand growing too fast, above the economy’s potential output. This time inflation was caused by a lack of supply of basic goods for manufacturing.”

According to Mr Khang, inflation could increase by 2 to 2.2% in the first quarter of 2022 compared to the first quarter of 2021. While the VND 350 trillion bailout package will boost aggregate demand, Mr Khang said: don’t worry too much about this package which will increase aggregate demand too much.” Importantly, in order to control inflation, it is necessary to strengthen coordination between different policies such as fiscal, monetary and other supportive policies.

Scarcity of supply will drive up prices

“The nature of the inflation risk this time around is a shortage of supply,” reiterated Mr Nguyen Ba Khang. “Therefore, controlling aggregate demand, lending, and worrying about excess money are not the issues that need to be addressed now.”

“We need to focus on the goal of economic recovery. To do that, the role of price stabilization and inflation control is of course very important. Firstly, it is necessary to stabilize the macro economy, control the price increase of consumer goods, then there will be a foundation for sustainable economic development,” said Mr. Khang.

Mr Nguyen Bich Lam said stable prices and controlled inflation will promote the process of economic recovery and development. When prices are stable, macro stability will be maintained. This is an important factor that has done Vietnam well in recent times, giving investors and companies the confidence to feel safe to expand production and invest in Vietnam.

In addition, when prices are stable, controlling inflation will help in the execution of investment projects, especially in infrastructure investments. High prices force contractors to spend time renegotiating with the investor, leaving the project behind schedule. If the project is not behind schedule, the project will soon bring its effectiveness into play and contribute to growth, not just this year next year, but for years to come. On the other hand, stable prices do not lower people’s income, they will be sure to spend and invest – a factor that favors an increase in aggregate demand.

According to this expert, macro stability will be risk-free and reduce the effectiveness of fiscal, monetary and other policies, especially those described in the 350 trillion dong bailout package.

Further analysis, Mr. Lam found that fiscal policy accounted for 291 trillion (83%), monetary policy 55 trillion (accounting for 14%) and that 3% was other supportive policies.

Whether the support package will cause “the money supply to accelerate, causing inflation”, confirmed Mr Nguyen Bich Lam: it is not.

“In the monetary package, the National Assembly and the government have agreed to reduce VAT from 10% to 8% on many goods and services. So this policy does not have to increase the money supply. Or attributing interest to companies is not a cash injection. The company should have paid 10% of the loan costs, now it only has to pay 9%. Those are solutions that the government and ministries have carefully studied, have a plan to implement methodically and in the right dose so that they do not cause inflation,” said Mr Lam.

But the inflationary pressure of this package, he says, is that as demand increases, more materials will be needed, such as investment in infrastructure, which will require more iron and steel and construction materials. So the pressure to increase inflation from this economic recovery package does not come from the money supply, but from how to ensure the supply of raw materials for the economy.

Therefore, it is necessary to ensure sufficient supply, not disrupt the supply chain so as not to create inflation, which helps to stimulate economic recovery, he noted.

@ vietnamnet



Source: Vietnam Insider

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