HSBC Global Research has revised down its inflation forecast for Vietnam from 3.7% to 3.5% for 2022.
|Locals at a supermarket in Hanoi. Photo: The Hanoi Times|
In its latest report, HSBC Global Research noted price pressures have now picked up in several markets in ASEAN, after a year of low inflationary pressure compared to other parts of the world.
“The biggest risk to price stability in the region, so far, is the surge in global energy and food prices,” it added.
However, compared to core inflation in countries such as the Philippines, Indonesia, and Malaysia that are especially sensitive to a pick-up in non-core inflation, the situation is less so in Vietnam.
HSBC’s assessment is similar to those of other international organizations, with the World Bank in its June macro report noting Vietnam’s inflation remained significantly lower compared to the Government’s target of 4%.
Meanwhile, IMF also forecast Vietnam’s inflation would stay under control at 3.9% in 2022.
|HSBC headline inflation forecast and revisions.|
According to HSBC Global Research, energy price inflation has been persistent in Vietnam. Transport prices rose to record highs, replacing food inflation to be the main driver of Vietnam’s headline inflation.
On top of surging global oil prices, a domestic petroleum supply shortage has exacerbated Vietnam’s energy crunch. Since January, Vietnam’s largest refiner, Nghi Son Refinery, has been running at a reduced operating rate, coming close to a shutdown in February, before improving to about 80% capacity in March. This has forced the authorities to look for alternatives to alleviate the energy pressure.
The Government has pledged to import an additional 2.4m cubic meters of petroleum in the second quarter of 2022.
Meanwhile, since April 1, the Vietnamese Government has also cut the environment tax, the largest of all taxes and fees on fuel, to VND2,000 on gasoline and VND700-1,000 on other fuels.
Despite elevated energy prices, moderate food inflation, which has a bigger weighting in the CPI basket, has so far helped to curb the overall rise in headline inflation, it noted.
Minister of Finance Ho Duc Phoc in a discussion session at the National Assembly on June 8 noted Vietnam’s independence in the food supply, which accounts for 40% of the commodity bundle used for the calculation of the consumer price index (CPI), has been a key factor in helping the country to keep inflation under control.
While Vietnam’s inflation (2.25% in April) remains well below the State Bank of Vietnam (SBV)’s 4% inflation target, for now, HSBC expected persistent high energy prices to continue driving up headline prices to over 4% in the second half of 2022, but only in temporarily basis.
“This may prompt the SBV to deliver a possible 50bp rate hike in the third quarter, before delivering three more 25bp hikes in 2023,” it concluded.