Inflation in 2019: will it remain below 4-5 percent?

03:34' PM - Tuesday, 09/10/2018

Curbing the inflation rate at below 4 percent in 2018 is within reach, but this will be a difficult task in 2019.

Inflation is a matter of greatest concern all over the globe. The high inflation rate has forced central banks to raise the interest rates to implement the tightened monetary policy. Argentina has raised its policy rate from 45 percent to 60 percent per annum.

The National Assembly earlier this year decided that the inflation rate must not be higher than 4 percent this year. By the end of August, the CPI increase had reached 3.52 percent.

To curb the inflation rate below 4 percent by the end of the year, it will be necessary to maintain the CPI increase at no more than 0.79 percent per month in the last four months of the year.

Analysts said the target is within reach as the factors which may have a big impact on inflation no longer exist. In addition, the government is taking serious solutions to be sure the goal is attainable.

The solutions include administrative instructions. The government has instructed Electricity of Vietnam (EVN) to delay the electricity price and environmental tax increase plans, and to reduce healthcare service fees.

Analysts pointed out that these are just temporary solutions because delaying the price increases or forcing down prices will affect the nation’s budget collection and expenditure balance.

They also warned that the use of administrative instructions in a market economy will cause long-term consequences, which once occurred in the past.

Therefore, controlling inflation will be a difficult task in 2019, especially when there are many external factors out of reach of Vietnam’s management agencies.

First, the crude oil price in the world market. The escalated political tensions may push the oil price up as it happened in 2008-2009, when the price hit the peak of $147 per barrel.

As petrol products make up 3 percent of the basket of goods for CPI calculation, the petrol price hike will have direct impact on inflation.

The global financial crisis in 2008-2009 pushed Vietnam’s inflation rate up to 18 percent in 2011.

Second, the Vietnam dong has depreciated less against the dollar than other currencies such as Chinese CNY, Thai THB and Indonesian IDR.

This means that the dong has appreciated against other currencies. This will prompt Vietnamese businesses to import more goods instead of making products domestically.

The Ministry of Planning and Investment (MPI), in its first draft report about the economic situation in 2019, has raised the targeted inflation rate to 4-5 percent, or one percentage point higher than the target set for 2018. - VNN -

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