2023 faces many inflationary pressures

In 2023, inflation risks will remain strong despite the economy's twin successes in 2022: high GDP growth and low inflation, which requires more caution.

In recent years, stabilising the macroeconomy and containing inflation have been top priorities in Vietnam's macroeconomic management. However, in an open economy such as Vietnam, the danger of importing inflation is high, and inflationary pressure is always possible; thus, more caution is required.

According to analysts, the Vietnamese government effectively managed market prices in 2022 to contain inflation. This year, inflation overtook the worldwide economy, particularly in Europe and the United States.

Inflation in the Euro area climbed by 11.1 per cent in November 2022; inflation in the United States increased by 7.1 per cent, and the US Federal Reserve continued to maintain a restrictive monetary policy. In November 2022, inflation in Thailand hit 5.6 per cent.

Korea's inflation rate climbed by 5 per cent; Indonesia's by 5.4 per cent; China's by 1.6 per cent; and Japan's rise of 3.8 per cent was a record for several decades.

Vietnam has kept inflation at 3.15 per cent, but the economy is constantly concerned about the return of excessive inflation. It is a significant success for the Vietnamese economy, highly regarded by several international financial organisations.

However, in 2023, a preoccupation with inflation will remain. Although the average consumer price index (CPI) grew by just 3.15 per cent, customers feel the heat of high inflation as market and supermarket prices continue to rise.

If the economy is not managed carefully, the 'ghost' of inflation will appear
2023 faces many inflationary pressures: Illustrative image. (Photo: VIR)

When input materials prices have risen dramatically over the last year, businesses feel "hotter" or even "burnt." According to the General Statistics Office, the price index for raw materials and industrial materials grew by 6.79 per cent in 2022 over the previous year.

The price index of raw materials, fuel, and materials used in agricultural, forestry, and fishing production climbed by 9.88 per cent; those used in industrial production, processing, and manufacturing increased by 5.53 per cent; and those used in building increased by 6.96 per cent.

Even if only CPI data is considered, there are reasons to be concerned. On average, Vietnam's CPI in 2022 climbed by just 3.15 per cent, but compared to December 2021, it increased by 4.55 per cent, which is a high rate. The average CPI in the fourth quarter of 2022 rose by 4.41.

Even though Vietnam belongs to the group of nations with moderate inflation relative to the average, its CPI in December 2022 climbed by 4.55 per cent, making it greater than both China's and Japan's inflation at that time.

This increasing trend indicates that inflationary pressure will exist in 2023. In addition, other variables might influence market prices and inflation. Some government assistance measures must stop in 2023, such as cutting the value-added tax, various taxes and charges, the environmental tax, gasoline, and supporting employee rules. If this is not renewed, the CPI will immediately be affected.

The rise in salaries and the delayed price adjustments of certain state-controlled goods and services, such as energy rates and tuition fees, will also impact CPI growth if implemented in 2023.

Although global inflation pressure is not likely to be as high in 2023 as it was in 2022, local inflation may be affected for a variety of reasons. This includes a roughly $3 billion public investment plan that will be injected into the economy next year. The fact that a significant portion of the Socio-Economic Development and Recovery Programme's budget must be released in 2023 will likewise inject a substantial quantity of money into the economy.

It is not a coincidence that, while determining the socio-economic development objectives for 2023, the National Assembly voted to set the inflation target at 4.5 per cent instead of below 4 per cent, as it did in 2022. This demonstrates the depth of inflationary fears.

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