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Inflation threat returns with global economic recovery

Update: May, 24/2021 - 08:22
The prices of agricultural, fishery and forestry items used in processing were up to 6.77 per cent while those used for industrial production rose by 4.95 per cent. Photo http://thoibaotaichinhvietnam.vn

 Compiled by Thiên Lý

The prices of many goods have shown signs of rising, which poses the question, “Is inflation about to rear its head?”

The costs of raw materials used in several industries have risen sharply in recent months, pushing up the prices of many goods, including essential consumer goods.

For instance, instant noodles, seasonings, cooking oils, and others have seen their prices rise by 7-10 per cent since the start of this year.

The prices of meat and poultry have increased by 10-15 per cent.

The prices of raw materials used to make animal feed, such as corn, rice bran and fish flour, are also rising.

According to the latest report by the General Statistics Office, in the first four months of the year the prices of raw materials, fuel and feedstock and intermediate goods used in manufacturing increased by 4.64 per cent year-on-year.

The prices of agricultural, fishery and forestry items used in processing were up to 6.77 per cent while those used for industrial production rose by 4.95 per cent.

The rise in fuel price is partly attributed to the price hikes of such raw materials and manufactured materials and then commodities.

According to Vietnamnet.vn, the average petrol price in Singapore rose sharply in March compared with the price calculation cycle commencing on February 25.

RON 92 petrol, which is used to make E5 RON 92, cost an average of US$71.21 per barrel, an increase of 5 per cent from the same period last year. The price of RON 95 too was up 5 per cent at $72.81 per cent.

The prices of oil products are also on the rise. Kerosene, for instance, sold at $71.02 per barrel.

In the global market, crude oil prices continue to increase thanks to optimistic forecasts about the recovery of the economy and a drop in US petrol inventory.

On March 11 WTI light sweet crude oil was $64.72 per barrel at the New York Mercantile Exchange. Brent sea crude oil with delivery in May was at $68.17.

As such, the crude oil price increased by $0.86 per barrel compared with the same period of March 10.

On March 27 Việt Nam’s Ministries of Industry and Trade and Finance decided to hike fuel prices though not by much.

But on May 12 they decided to hike prices again, this time by around double the March hikes: E5 RON 92 was up VNĐ438 to VNĐ18,426 per litre, RON 95 was up VNĐ370 to VNĐ19,531 and diesel 0.05S was up VNĐ446 to VNĐ14,774. 

With the rise in fuel prices, the prices of several inputs for manufacturing have already started increasing. The prices of steel and cement products are up 35-40 per cent from the same period last year, while those of corn and rice bran have risen by 20-70 per cent.

Analysts said though the increases in prices were rather moderate they would have an impact on the consumer price index (CPI).

Deputy Minister of Planning and Investment Trần Quốc Phương said the CPI would rise gradually in the remaining months of the year.

He said in the first quarter prices had risen by only 0.29 per cent year-on-year but one month later it was up at 0.89 per cent.

According to Nguyễn Quốc Việt, deputy director of the Việt Nam Institute for Economic and Policy Research, inflation is not yet a threat to the economy but there are signs it could rise further in the coming months.

The increasing speculation in the real estate market is causing a possible bubble, posing a risk to the banking sector’s credit activities and consumer prices, he said.

Other analysts agreed with Việt saying that there are a number of factors that could push the CPI up this year.

The prices of a number of raw materials are expected to rise again in the global market once the Covid-19 pandemic is controlled. The vaccines that are now available are expected to drive a strong recovery in production and trade activities, thus increasing demand for them.

In Việt Nam, the Government is speeding up public spending and loosening monetary policies to revive economic growth, and as a result money supply is increasing, one of the main factors that cause inflation.

Nguyễn Anh Tuấn, director of the Ministry of Finance’s price management department, warned about likely rises in prices this year, especially of essential goods like fuels and pork.

Some analysts also pointed out another possible reason for a rise in inflation this year: government agencies taking advantage of the current low inflation rate to hike the tariffs on electricity, water and healthcare services to bring them closer to market prices.

With the threat of inflation looming, analysts said government agencies should strengthen oversight to ensure all service providers scrupulously comply with the laws on prices and taxes and fees, and closely monitor listing of prices, especially of items in high demand during the upcoming summer holidays.

They stressed the need to ensure there is adequate supply of goods in the market to ensure prices are steady.

GSO experts warned however that the target of keeping inflation to below 4 per cent for this year is not going to be an easy task.

Mekong Delta leads country in FDI

In the first four months of the year the Cửu Long (Mekong) River Delta led the country in attracting foreign direct investment, taking economists by surprise.

Much of the investment went into power plants.

Authorities in Cần Thơ City granted a licence to the 1,050 MW Ô Môn II thermal power plant, US$1.3 billion project by Japan’s Marubeni Group.

The biggest foreign project in Cần Thơ to date has caused the city to zoom to number two in the list of localities attracting the most FDI in the country and accounts for 10.7 per cent of the total pledged in the year to date.

Even more impressively, in March Long An Province issued a certificate of business registration to LNG Long An I&II projects which have an investment of US$3.3 billion.

The project by Vinacapital GS Energy Pte.Ltd will have two gas-fired power plants with a combined capacity of 3,000 MW.

It has made Long An the top locality in the FDI list in the first four months.

Overall, Việt Nam attracted US$8.5 billion worth of foreign investment, a year-on-year increase of 24.7 per cent.--VNS

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