Fuel price hike propels Vietnam’s May inflation to record high

Fuel price hikes have helped boost Vietnam's inflation rate in May

The hike was led by traffic and transportation services, which rose 1.72 percent over last month, followed by food and beverages by 0.88 percent and housing, construction and utilities by 0.34 percent.

The increase in CPI this month is attributed to the fuel price hikes on May 8 and May 23, in which A95 and E5 fuel prices went up by VND1,010 per liter (4 cents), while diesel prices increased by VND960 per liter.

The new gasoline prices have, in turn, pushed up the fares of transport services, said Huynh Quoc Thinh, CEO of the Phu My transport company. Fuel costs for containers and heavy trucks account for 40 percent of the total revenue. For other types of vehicles, the ratio is 30 percent.

Higher transport tariffs could lead to higher general consumer prices, economists say.

“Most of the products will have to suffer higher transportation costs, directly or indirectly, and therefore, the people will have to take the ‘full force’ of this increase,” economist Ngo Tri Long told the Tuoi Tre newspaper.

In addition to fuel price hikes, the plan to raise environment taxes on fuels starting in July could further increase inflation and hurt businesses in the country, the economists have warned.

Under a Finance Ministry proposal being reviewed by the Standing Committee of the legislative National Assembly, the environment tax on gasoline will increase by 33 percent to VND4,000 per liter (17 cent).

If approved, the tax increase would raise inflation by 0.11 to 0.15 percentage points in 2018. Vietnam has set an inflation target of 4 percent for this year.

During a cabinet meeting last month, PM Nguyen Xuan Phuc warned that inflation could increase further as global prices of crude oil and basic commodities rose.

“We cannot be careless when it comes to inflation,” he said.