As consumer demand increased during the Tet holiday, the CPI for food and food stuffs increased by 0.8% mom, while the CPI for beverages and tobacco increased by 1.1% mom. 

As consumer demand increased during the Tet holiday, the CPI for food and food stuffs increased by 0.8% mom, while the CPI for beverages and tobacco increased by 1.1% mom. Transport CPI increased by 1.4% mom in January 2023 due to the recovery of domestic gasoline prices in 2023. On a year-over-year basis, Vietnam's CPI increased by 4.9% yoy in January 2023, the highest level since March 2020.

Mr. Dinh Quang Hinh, analyst at VNDirect, expects inflation pressure to remain high in 1H23 for the following reasons:

First, retail sales of consumer goods and services are expected to increase 8.5–9.0% yoy in 2023F, lower than the 19.9% yoy in 2022.

Second, the National Assembly has decided to increase the base salary to VND1.8m/month, equivalent to an increase of 20.8%, effective since 01/07/2023. In addition, an increase in pensions, social insurance allowances, and job allowances for a number of people, such as pensioners from the state budget, grassroots medical staff... was approved. Once the base salary increased, inflation also tended to increase due to the psychology of increasing wages associated with the increase in the price of consumer goods in parts of the grocery and retail industries.

Third, though global commodities have peaked out, the effect of rising US$ on imported material still lingers until 3Q23F.

Fourth, the higher cost of debt will fully pass through to retail prices for end-users.

Fifth, it is highly likely that the government will raise the prices of some public essential services, i.e., electricity, health care, and school fees, this year. To be more specific, the retail electricity price will be under upward adjustment pressure in 2023 due to the increase in production costs (increased exchange rate, increased input material prices, including coal and gas, etc.). Accordingly, the government has just promulgated a new average retail electricity price bracket, with the minimum (excluding VAT) being VND1,826.22/kWh and the maximum being VND2,444.09/kWh. Compared to the old price bracket, the minimum price increased by VND220.03/kWh (equivalent to 13.7%), and the maximum price increased by VND537.67/kWh (equivalent to 28.2%).

In fact, the average retail price bracket is the floor and ceiling level for the government to regulate the official retail price of electricity. The change in the average retail electricity price bracket has not immediately changed the official retail electricity price for daily life and business activities. Currently, the official average retail price of electricity is VND 1,864.44/Kwh, still within the new retail electricity price bracket.

"We forecast Vietnam's CPI to average 4.2-4.6% yoy in 1Q23F. We keep unchanged our forecast of the 2023F average headline inflation increase of 3.8% yoy (/- 0.2 percentage points), below the government's guidance of 4.5%. A downside catalyst for 2023F CPI could be lower-than-expected demand in developed markets amid an economic slowdown. An upside risk could be the stronger-than-expected demand recovery in China, which might boost global inflation," said Mr. Dinh Quang Hinh.