Nguyen Duc Do, vice director of the Ministry of Finance’s Economic and Financial Institute (EFI), last week said that with a low inflation rate recorded in the first half of 2023, the government may reach its target of bringing inflation under control at 4.5 per cent this year because of a downtrend in oil prices and stable exchange rate, in addition to low demand in the domestic market.

The on-year consumer price index (CPI) in the first half of this year increased 3.29 per cent, largely due to low economic growth of 3.72 per cent on-year and low money supply into the economy, climbing 2.53 per cent compared to the end of 2022.

“The main cause behind such a slow increase in money supply is weak demand for credits and commercial banks limiting loans for fear of bad debts,” Do said at last week’s conference on the issue in Hanoi. “These factors have led to a fall in CPI in the first six months of this year, and will continue impacting the CPI increase in the latter half of the year.”

The EFI forecast that there may be no shocks in oil prices and exchange rate as seen last year, making it favourable for Vietnam to rein in inflation.

“As for oil prices, there is a high risk of a global economic downturn that may happen in later 2023 or early 2024, and oil prices may continue its downtrend over the past one year, or they may have no big increase until the year’s end,” the EFI stated in a report last week.

The domestic market saw a reduction in petrol and oil prices last week, at an average of 2 US cents per litre. In the first half of 2023, the petrol and oil prices decreased 18.27 per cent on-year, leading to a 0.66 per cent decrease in the CPI, according to the Ministry of Finance’s Department of Price Management.

“Meanwhile, in the first half of 2023, the USD/VND exchange rate remains stable thanks to Vietnam’s trade surplus of $12.25 billion. Moreover, the USD is now depreciating, and it’s likely that the exchange rate will be kept stable at the +/- 1-2 per cent band by the State Bank of Vietnam.”

Over the past year, the CPI has climbed only 0.17 per cent on-year a month.

“If this increase is kept in the latter half of this year, and the inflation rate for the whole 2023 will ascend by only 2.5 per cent,” said the EFI.

Le Quoc Phuong, former vice director of the Ministry of Industry and Trade’s Centre for Industrial and Commercial Information, also forecast that under his research, there are two inflation scenarios for the year’s end.

“Under the first scenario, if the global economy suffers from a depression and world prices don’t increase, Vietnam’s inflation rate will be 3.5 per cent. Under the second scenario, if the global economy recovers and the world prices increase slightly, Vietnam’s inflation rate will be 4-4.5 per cent,” Phuong said.

Meanwhile, global analysts FocusEconomics stated that in Vietnam, price pressures are poised to accelerate on average this year compared to 2022, although they should remain below the central bank’s 4.5 per cent target.

“Monetary policy easing and oil price fluctuations are key factors to watch,” FocusEconomics said. “Our panellists see consumer prices rising 3.8 per cent on average in 2023, which is unchanged from one month ago, and rising 3.5 per cent on average in 2024.”

Analysts at the Economist Intelligence Unit said, “Inflation will ease more rapidly over the second half of 2023 as declining global energy prices translate into easing cost-push pressures across a range of goods and services, while a higher base of comparison from the year earlier period will also come into play.”