Vietnam’s headline CPI in 2021 rose 1.84% YoY, the lowest in the past five years and well under the target of 4% set by the government.

Inflation remained low

Vietnam’s headline CPI in 2021 rose 1.84% YoY, the lowest in the past five years and well under the target of 4% set by the government. Quarterly, headline CPI increased by 1.89% in the fourth quarter, down slightly from 2.51% in the third quarter. However, inflation is gradually increasing along with global consumption demand thanks to accelerated vaccination programs. On average, core inflation tended to be similar to headline inflation when core CPI increased by 0.81% YoY.

KB Securities said there are many key impacts on CPI in 2021. First, prices of foodstuffs were reduced 0.54% over the past year, making the headline CPI go down 0.12 percentage points.

Second, the government has deployed support packages for pandemic-hit individuals and corporates, such as the electricity tariff and electricity bill discount of Vietnam Electricity (EVN), which made the prices of household electricity decrease 0.89% YoY. Headline CPI declined by 0.03 percentage points as a result.

Third, domestic petrol and oil prices jumped 31.74% YoY, causing the headline CPI to increase 1.14 percentage points.

Fourth, gas prices climbed 25.89%, making the headline CPI inch up 0.38 percentage points.

Fifth, the prices of educational services went up 1.87% YoY, making headline CPI rise 0.1 percentage points due to the tuition fee increases for the new school year 2020-2021 according to the roadmap of Decree No. 86/2015/ND-CP.

Inflation forecast for 2022F

Despite some potential risks fueling inflationary pressure this year, KB Securities expected Vietnam's inflation to be kept well under 3.8%, underpinned by: (1) slow recovery of demand partly coming from Vietnamese people's saving habits to overcome hardship; (2) the SBV's more cautious monetary policy in the face of concerns about inflation risks, slow M2 growth rate and conservative foreign currency purchases; and (3) the upward trend of commodity prices, including pork and petrol prices, but at a slower pace as the bottleneck of the supply chain gradually eased off.

Commodity prices have recovered significantly from the second half of 2020 until the middle of the second quarter of 2021, with the main driving force coming from China's boosting of imports of energy, metals (fueled by infrastructure development), and agricultural commodities (to ensure food security). In the second half of 2021, the upward momentum showed signs of leveling off and moving sideways, except for the prices of energy products such as oil, gas, and coal, which increased from the end of the third quarter in the context of the energy crisis in the UK and China. KB Securities expects the US, China, India, Japan, and the UK to work together and release oil reserves to restrain rallies in fuel prices.

"We forecast pork prices could rise to VND60,000–70,000/kg in 2022 thanks to the increasing demand for food amid decreasing pork supply. Swine fever, high bran prices, and low bidding prices are the main contributors to the slowdown of re-herding at the end of 2021. However, pork prices are unlikely to reach 2020 peaks thanks to the government's priority to enhance domestic supply", KB Securities said.