Solutions to curb price increase in Vietnam

DNHN - The economic and social situation in the first 5 months of 2024 has continued to show positive trends, but the average CPI for this period has increased by 4.03%. Therefore, controlling inflation remains a key goal and challenge for the government.

In November 2023, the National Assembly set the inflation control target for 2024 at 4-4.5%. According to the General Statistics Office, the average CPI for the first five months of 2024 increased by 4.03% compared to the same period last year, with May alone seeing a 4.44% increase year-on-year. The 4.44% figure is close to the upper limit of the 2024 inflation control target of 4.5% set by the government, potentially complicating efforts to boost credit growth to stimulate economic activity.

In early May 2024, Deputy Prime Minister Le Minh Khai requested that ministries, sectors, and localities implement reasonable measures to keep inflation within the 4-4.5% target range as outlined in the resolution.

Prioritizing inflation control

Controlling inflation has become a primary goal for the government given the rising CPI, which poses numerous challenges.

On the morning of June 12, Deputy Prime Minister Le Minh Khai, head of the Price Management Committee, chaired a meeting to assess the results of price management and regulation in the first half of the year and set the direction for price regulation for the remaining months of 2024.

According to a report by the Ministry of Finance, which acts as the standing agency of the Management Committee, the average CPI for the first five months of this year increased by 4.03% compared to the same period in 2023. Within this increase, 10 out of 11 commodity and service groups saw price index increases, while one group saw a price index decrease.

Notably, the education group index increased by 8.7% due to some provinces and cities raising tuition fees for the 2023-2024 school year, adding 0.54 percentage points to the overall CPI. The healthcare group index rose by 6.87%, adding 0.37 percentage points to the overall CPI, as medical service prices were adjusted according to the Ministry of Health's Circular No. 22/2023/TT-BYT from November 17, 2023.

The housing and construction materials group index increased by 5.49%, adding 1.03 percentage points to the overall CPI due to rising prices of cement, steel, sand, and higher rental prices. The culture, entertainment, and tourism group index rose by 1.6%, adding 0.07 percentage points to the overall CPI.

During the meeting, Deputy Prime Minister Le Minh Khai asked the Ministry of Industry and Trade to draft a scenario for adjusting electricity prices in June, including the timing and extent of the adjustment. He also requested that the education and health sectors prepare scenarios for managing the prices of goods and services in these sectors this month.

Regarding electricity prices, according to Vietnam Electricity (EVN), with fluctuations in input costs (coal, oil, gas) and EVN's reported loss of nearly 38 trillion VND in 2022-2023, the Ministry of Industry and Trade has proposed further electricity price adjustments this year. The Deputy Prime Minister noted that a 10% increase in residential electricity prices would raise the CPI by 0.33 percentage points. Since May 15, the mechanism for adjusting retail electricity prices has been implemented according to Decision 05/2024, which allows for price adjustments every three months when input costs rise by 3% or more. The most recent electricity price increase was 4.5% in November 2023. In early February, Prime Minister Pham Minh Chinh advised that electricity price adjustments should "align with the market, without abrupt or hasty changes." "The principle is for electricity prices to be competitive but still regulated by the state."

In the regular government meeting in April, besides highlighting achievements, Prime Minister Pham Minh Chinh emphasized the ongoing challenges, constraints, and difficulties facing the economy, including significant pressure on macroeconomic management and inflation control. Consequently, the Prime Minister has urged ministries and sectors to enhance price and market management, schedule appropriate price adjustments for state-controlled goods and public services, and avoid abrupt price hikes, particularly around the scheduled wage increases in early July 2024.

Recent market conditions have shown upward price movements. Therefore, measures to prevent the establishment of a new higher price level in the market pose significant challenges.

In reality, many services and goods have seen price increases, such as tuition fees, medical fees, electricity, water, fuel, transportation fares, and essential commodities, with further increases likely as fuel prices remain volatile depending on geopolitical situations. Meanwhile, gold prices have surged, prompting the State Bank to intervene for stabilization; the USD exchange rate has also fluctuated significantly, affecting production and exports. According to the General Statistics Office, rising pork and electricity prices were the primary drivers of the higher inflation rate in May.

With an average CPI increase of 4.03% over the past five months, while bank deposit interest rates have decreased, it is evident that with such a CPI level, interest from savings deposits (mostly from the elderly and retirees) only compensates for inflation.

Three scenarios for inflation

The government has set a goal to keep inflation at 4.5%, but with May's CPI increasing by 4.44% year-on-year, the remaining monthly increase from now until the end of the year must be 0.3-0.5% compared to the previous month to hope to achieve the inflation control target of 4.5%.

The General Statistics Office has developed three inflation scenarios for 2024. In the scenario where the annual CPI increases by 3.8%, inflation will peak in the first half of the year and then decline in the second half. In the scenarios where the CPI increases by 4.2% and 4.5%, inflation will be high in the first two quarters, decrease in the third quarter, and then rise again in the fourth quarter. Each scenario considers price pressures both domestically and internationally. However, significant pressure from July 1 is anticipated when wage reforms and minimum wage increases will be implemented, which will add inflationary pressure. Additionally, global oil price fluctuations, which are unpredictable, will impact inflation not only in Vietnam but in many other countries as well.

For 2024, Vietnam aims for an economic growth target of 6-6.5%, higher than the 5.05% achieved in 2023.

Meanwhile, according to predictions from Oxford Economics, Vietnam's GDP growth in 2024 is unlikely to reach the target of 6.0-6.5%.

In his report to the National Assembly on June 6, Deputy Prime Minister Tran Hong Ha stated that the economy had achieved many positive results in the first five months of the year. Inflation remains under control, and the economy maintains good recovery momentum across all three sectors. Notably, the industrial production index increased by 6.8% in the first five months of the year (compared to a 2% decrease in 2023), agriculture developed steadily, and services continued to grow strongly.

To ensure the growth target is met, the government's priority is to promote growth while maintaining macroeconomic stability, controlling inflation, and ensuring the major balances of the economy.

In the regular government meeting for May 2024 on June 1, Prime Minister Pham Minh Chinh also noted that the socio-economic situation in May and the first five months of 2024 continued to show positive trends, with many sectors achieving higher results in May than in April, and the overall five-month performance being better than the same period in 2023. However, there are still persistent challenges, difficulties, and pressures, particularly regarding controlling the CPI, promoting growth, and maintaining macroeconomic stability.

If there are no major, unexpected disruptions from now until the end of the year that significantly impact governance, inflation can be effectively controlled. The Prime Minister also demanded "no abrupt price increases, no simultaneous price hikes for multiple items, and no price increases at the time of wage increases".

Vinh Hy