Commodity prices tend to increase due to increased consumer demand at the end of the year. Photo: Tran Viet/VNA)

Risks from “imported inflation”

According to the latest data of the General Statistics Office, despite the increase in gasoline prices and the increase in consumption, the consumer price index (CPI) in November 2021 increased by 0.32%, compared to the previous month. However, on average over the past 11 months, CPI only increased by 1.84%, the lowest in the past five years.

Notably, core inflation in November 2021 increased by 0.11% compared to the previous month, and increased by 0.58% compared to the same period last year. The average core inflation in the first 11 months of the year increased by 0.82%, compared to the same period last year. Thus, average core inflation has increased less than the overall average CPI. This reflects fluctuations in consumer prices, mainly due to increases in food prices, gasoline, oil and gas prices. Core inflation in November and 11 months of 2021, compared to the same period last year, are both the lowest levels since 2011. With this result, inflation this year is sure to be controlled at a low level of around 2%.

However, warnings that inflation will increase in 2022 continue to be given by economists. At least until commodity prices on the world market increase and domestic demand gradually recovers, especially the demand for consumption in the coming New Year and Lunar New Year 2022.

Analyzing more closely the factors of inflation risk in 2022, Bui Thuy Hang, Deputy Director of the Monetary Policy Department (SBV) said, “the State Bank expects inflation in 2022 to face great pressure due to from many factors. Firstly, because Vietnam is a country with a large economic openness, the total import-export turnover per gross domestic product is 200%, so there is a risk of "imported inflation". Secondly, countries around the world are beginning to loosen their monetary policy and raise interest rates. Thirdly, inflation control faces many pressures from both demand-pull factors and cost-push factors, such as: increasing trends of world raw material, fuel and material prices and the resilience of food prices, especially fresh meat and poultry. In the context of continued high feed prices, the recovery of domestic and world supply chains was slow compared to the growth rate of aggregate demand, causing commodity prices to increase rapidly. Therefore, when the economy recovers in 2022 under the impact of support packages that increase consumption and investment demand, it will put great pressure on prices.

“International organizations forecast that Vietnam's inflation next year will be around 3.5-4%. The risk of inflation exceeding 4% depends on world commodity prices. In addition, the International Monetary Fund (IMF) and other international organizations have also warned Vietnam about the increased risk of “import inflation”. Therefore, in operating monetary policy, it is also necessary to assess scenarios that control inflation", said Bui Thuy Hang.

Sharing the same view, economist Can Van Luc forecast that inflation in 2022 will be at 3.4-3.7%. Although this is lower than the target of 4%, it is a sharp increase compared to 2021 and compared with global and ASEAN averages. The inflation risks mean Vietnam is still under increasing pressure considering that world prices have not yet cooled down soon. Domestically, many pressures cause inflation to increase, such as the global CPI forecast at 3.3% in 2022, higher than 2021 (3.2%). Emerging markets are forecast at 4.1%, compared with 3.8% in 2021. The fear of "imported inflation" may push up inflation expectations, especially considering that Vietnam is still heavily dependent on imported inputs.

But how to control inflation?

Associate Professor, Dinh Trong Thinh, said, “that in order to control inflation in 2022, the implementation of fiscal and monetary policies should be carefully considered because a large support package will raise concerns about inflation.

Although people now desperately need support packages after the effects of the pandemic, they must be appropriate, ensuring the amount of currency circulating in the market is at a safe level. In addition, we also don’t want to prolong this support period. Particularly, the increase in fuel and raw material prices from abroad is difficult to change, as production and business activities of countries around the world are recovering, so we have to accept high prices at certain times. Instead, businesses must organize production and business, so that they can save maximum costs and still achieve the best possible efficiency. In addition, State management agencies need to strictly manage prices, while at the same time strengthening the management of goods that are priced by the State. The aim of this is to make prices go up, in order to stabilize the market.”

According to economist Can Van Luc, Vietnam is still in an active position and has room to stabilize prices as well as the people's psychology, as there are four main factors that support inflation control. Firstly, the growth in world commodity prices is expected to slow down from mid-2022. Also, the commodity price index is forecasted to decrease slightly in the period of 2023-2025, after the price shock in 2021, and in 2022, when the recovery momentum is shaped and firmer. In addition, the problem of the energy crisis in the world's leading suppliers of energy and raw materials will play a part.

Secondly, the macro foundation is quite solid, inflation is low and the basic exchange rate is stable, which are positive supporting factors. Major balances of the economy (public debt, budget deficit, trade balance...) are still being controlled quite well (despite the heavy impact of the pandemic and the pressure of increasing budget deficit and public debt being unavoidable). The exchange rate management policy is increasingly flexible and proactive and has been helping to stabilize the basic exchange rate, supporting macro stability and curbing inflation.

Thirdly, the coordination between monetary policy, fiscal policy and price is becoming more and more harmonious, most clearly showing the coordination in issuing government bonds, as well as neutralizing the amount of money in and out. Inflation did not spike sharply, both as a result of coordination in policy management and creating room for expansion at an appropriate level for fiscal and monetary policies in the medium term, thereby supporting a more sustainable recovery of the economy.

Finally, the structure of the basket of goods for calculating CPI is getting closer and closer to the international level, and the trend of reducing the proportion of essential commodities, such as foodstuffs - a group of goods that has a great impact on the calculation of CPI, will help keep the inflation level in the long-term more stable. At the same time, the stable trend of food and food prices in the country, thanks to proactively abundant supply, is also the foundation to resist the pressure of increasing food and food prices.