Vietnam’s strong CPI increase in May poses risks

There is no room for complacency amid a strong CPI increase in May

One of the primary reasons behind such a sharp rise was the impact of two rounds of petrol price hikes on May 8 and 23, which contributed a 0.16 pct increase. The month also saw a 0.88 pct increase in food and catering services as a result of higher rice and meat prices.

These figures show that the CPI has been rebounding, a stark contrast to a 0.27 pct drop in March which saw price falls in 8 out of 11 categories of goods and services used to calculate inflation, with the biggest fall recorded by transport costs at 0.77 pct, before returning to an increase of 1.14 pct as a result of fuel price rises in April.

In April, the CPI only rose by a slight 0.08 pct before soaring by 0.55 pct in May.

The prospects of inflation being brought under control in 2018 are supported by positive macroeconomic factors but there is no room for complacency amid a strong CPI increase in May. In the near future, efforts to keep a rein on inflation will still face plenty of pressure due to hidden risks.

One of the risks is the unpredictable variation in global oil prices, especially in the context of heightened geopolitical tensions. It is estimated that if domestic fuel prices go up by 25 pct, the CPI in 2018 will increase by 1.34 pct.

Furthermore, attention should be given to the delayed effects of monetary growth in recent years, the US Federal Reserve’s rate hikes, the continued upward adjustments to the prices of government-regulated goods and services and the prospects of recovering food prices.

If healthcare costs in 2018 are raised in accordance with the minimum wage, they would increase by 4 pct and contribute a 0.14 pct increase to the CPI. The contribution to the CPI would be 0.28 pct if management costs are included in healthcare costs. In addition, if pork prices rose by 10 pct, the CPI in 2018 would increase by 0.42 pct.