Vietnam’s inflation is maintaining at a low level thanks to certain supportive factors when compared with global inflation correlation. However, difficulties will increase in the near future.

To contribute more perspective on the current inflation situation, VnEconomy would like to introduce the article by  Hoang Nu Ngoc Thuy and Luong Minh Hien authors,  Vietnam Interbank Market Research Association.

Vietnam is a highly open economy. Meanwhile, the global inflation trend is present with the sharp increase in commodity prices having a direct impact on consumer prices. Therefore, domestic inflation will not avoid the general trend of the world.


Since mid-2020, after the whole world experienced the shock of the outbreak of the Covid-19 pandemic, the global economy has witnessed a continuously increasing inflation trend. High inflation occurred in many regions, including developed economies such as the US and EU, as well as many emerging economies (EMs).

In 2021, global inflation is estimated to reach 3.8%, the highest in 10 years. In the US alone, the average consumer price index (CPI) in 2021 increased by 4.7%, the highest increase in nearly 40 years, and inflation tends to increase gradually, reaching 7% yoy by the end of 2021 and continued to accelerate to 7.9% according to February 2022 data.

Is Vietnam's inflation a "headwind" in the global inflation trend? - Photo 1Is Vietnam's inflation a "headwind" in the global inflation trend? - Photo 1

Inflation pressure in recent years mainly comes from three factors:

Firstly, global supply chain disruptions, supply shortages caused by the consequences of the pandemic, such as more difficult transportation and travel, or labor and capital shortages. leading to reduction of production capacity in many areas.

Second, while the disruption to the global supply chain caused by the pandemic has not yet healed, the Russia-Ukraine conflict has exacerbated supply risks and increased inflationary pressures. The outbreak of late February 2022 is disrupting sea and air transport and threatening global supplies as Russia is the world’s top exporter of many important commodities. such as energy, grains and metals.

Third, the positive recovery of the global economy when vaccination speed increases, restrictions on Covid-19 are gradually eased, combined with support from loosening monetary and fiscal policies. liquid at an unprecedented rate in history. It is estimated that in 2021, global economic growth will reach 5.9% – a strong recovery after falling 3.1% in the previous year.

Is Vietnam's inflation a "headwind" in the global inflation trend? - Photo 2Is Vietnam's inflation a "headwind" in the global inflation trend? - Photo 2

The inflation risk that the world faces ahead is still very large. The Russia-Ukraine conflict has not shown any signs of cooling down and poses many risks to supply. World oil price has increased by about 40% since the beginning of 2022 to around 110-130 USD/barrel, and many organizations forecast Brent oil price will be above 100 USD/barrel for this year on average.

Even in a more negative scenario, if the conflict escalates to the point where energy supplies from Russia are completely cut off, oil prices can rise to $150/barrel or higher. Similarly, world food prices are also under increasing pressure due to tight supply of agricultural products and fertilizers. Wheat prices are up nearly 40 percent from the end of last year, while corn and soybeans are up about 25 percent.

The sharp increase in commodity prices has a direct impact on consumer prices, as well as indirectly causes inflationary pressure due to increasing production costs. While energy prices are considered a “temporary” inflation factor, inflation has shown signs of a stronger increase in basic components such as housing and services, a sign that inflation is not stable. higher will be more persistent.

Therefore, inflation is forecasted to continue to anchor high in the US, Europe and most emerging economies in 2022. JP Morgan’s latest global inflation forecast in 2022 continues to be high at 5.4 %, in the US alone, inflation is forecasted to reach a record of 6.3%.

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While high inflation is the dominant trend of the world economy, the opposite trend still appears in some countries, notably China. China’s CPI increased only slightly by 0.9% in 2021, low compared to the country’s average inflation in previous years. Inflation pressure continued to remain low in early 2022, with an increase of only 0.9% over the same period.

China’s inflation is mainly under pressure from rising energy prices, but the level is somewhat lighter than that of the US and Europe. Meanwhile, inflation from food prices and other components (housing, consumption, services) is at almost negligible level.

Is Vietnam's inflation a "headwind" in the global inflation trend? - Photo 3Is Vietnam's inflation a "headwind" in the global inflation trend? - Photo 3

The contrast in inflation trends between China and other economies can be attributed to four main reasons: (i) food prices; (ii) domestic consumption; (iii) monetary policy; (iv) State control measures.

First, food prices in China tend to decrease, contrary to the global trend. Specifically, while food prices in many places increased sharply due to tight supply (for example, in the US food prices increased by 6.3%), China’s food price index decreased by 0.1% in the year. 2021. The main reason is that the price of pork in this country has dropped sharply compared to 2020 (about 36%), thanks to the control of African swine fever and the strong recovery of livestock production.

Second, the demand-pull pressure for inflation is low: While consumer demand tends to recover strongly in other regions, typically the US, thanks to reopening and fiscal support, domestic consumption China’s recovery is slow due to (i) the “zero-Covid” blockade policy when infections appear in the community; (ii) the impact of the debt crisis in the real estate sector on economic sentiment and caused house prices to fall. China’s consumption growth is only 3.4%/year in the period 2020-2021, much lower than the growth rate of 8-10%/year in previous years.

Third, monetary policy is also one of the main factors that stabilize inflation in China. While many other central banks, typically the US, have applied a super-easy monetary policy to support the economic recovery, making the money supply growth rate up to 20-25% per year, the Central Bank The People’s Bank of China (PBoC) has maintained a somewhat more cautious monetary policy. China’s money supply growth in the two years 2020-2021 remains stable at 10-12%, thus not putting great pressure on inflation. In addition, the USD/CNY exchange rate also tends to decrease more than 10% in the period of 2020 – 2021.

Is Vietnam's inflation a "headwind" in the global inflation trend? - Photo 4Is Vietnam's inflation a "headwind" in the global inflation trend? - Photo 4

Fourth, the ability of the State to control prices: The domination of the state factor in the economy allows China to have a different ability to control inflation compared to other countries, through various tools. such as subsidies or market stabilization interventions. Specifically, from the end of October 2021, in response to energy shortages and hot coal prices, Beijing has implemented a series of interventions in the coal market including boosting production and imposing target selling price when exporting mines, causing coal prices to cool down.

For 2022, China’s inflation is generally forecast to stay around 2%, which is quite low compared to the world and will continue to be a “headwind” in the global inflation storm. Food prices are forecast to continue to be more stable compared to other regions. Consumer spending and domestic services are expected to continue to recover slowly due to local lockdowns as China continues to maintain its zero-Covid policy. Inflation is expected to continue at a low level of the year. 2022, about 2%. Government measures to ensure supply and stabilize prices will continue to alleviate pressure from world commodity prices.

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Is Vietnam's inflation a "headwind" in the global inflation trend? - Photo 5Is Vietnam's inflation a "headwind" in the global inflation trend? - Photo 5


With an inflation rate of 1.84% in 2021, the lowest since 2015, Vietnam is also a “headwind” in the world’s inflation trend up to now.

Compared with China, Vietnam also has similar characteristics as analyzed above, making inflation tend to be stable: (i) Food prices decreased by 0.5% due to abundant domestic supply, especially especially pork prices fell deeply by about 30%; (ii) Weak domestic aggregate demand due to the effects of prolonged social distancing; (iii) Supportive impact from the price of services managed by the State, including electricity price (down 0.9%), health service price (still unchanged, not increasing according to the roadmap), education service price ( a low increase of 1.9% due to the policy of tuition exemption and reduction for the academic year 2021/22 causing a sharp drop in prices from September); (iv) Using prudent and flexible monetary policy, the money supply growth is stable at 10-12%, and the USD/VND exchange rate in the interbank market also decreased by 1% compared to the previous year. , from 23,200 to 22,900.

Is Vietnam's inflation a "headwind" in the global inflation trend? - Photo 6Is Vietnam's inflation a "headwind" in the global inflation trend? - Photo 6

For 2022, we assess that inflation will continue to be supported by three factors: food prices, the state’s price management factor, and monetary policy:

Firstly, domestic food and food prices, although under pressure from high world prices of agricultural products and fertilizers, are expected to be much more stable than world food prices. In fact, agricultural prices often have mixed movements between different commodities, or between different regions of the world. While the prices of agricultural products and foodstuffs in the world tend to increase sharply, prices such as pork, rice, and vegetables in the country have been on a downward trend recently.

In the author’s opinion, this divergence is likely to continue in the near future. For example, rice is not directly affected by supply due to the Russia-Ukraine event, so the price pressure for this item will be less than for wheat. Meanwhile, China’s import demand for agricultural products is affected by the strict Covid-19 epidemic control policy, which will also make the domestic supply more redundant and help stabilize the prices of this commodity group. .

Is Vietnam's inflation a "headwind" in the global inflation trend? - Photo 7Is Vietnam's inflation a "headwind" in the global inflation trend? - Photo 7

Second , the price support effect of the State: The price of electricity and medical services is likely to remain stable at least until the end of 2022, while the price of education services continues to be supported by the policy. tuition fee waiver for the academic year 2021/22. In addition, the Government has issued a series of price support policies such as (i) reducing import tax rates of some commodities such as steel, corn, wheat; (ii) reduce value added tax from 10% to 8% from February 2022; (iii) reduce up to 50% of environmental protection tax on petroleum (estimated to reduce inflation by 0.3-0.4 percentage points);

Third, monetary policy is expected to be kept stable to continue supporting the economy and businesses in the context of many difficulties ahead, not yet immersed in the wave of tightening taking place in the world. gender. However, compared with the period of 2020-2021, monetary policy is likely to be somewhat more cautious, on the one hand it is necessary to keep an eye on inflation pressure and on the other hand, objective conditions for easing are also less favorable. more profitable when the foreign currency supply is no longer as abundant as in previous years.

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M2 money supply growth, after sharply increasing to over 14% in 2020 has tended to slow down significantly in 2021 when it drops to about 10.6% and is expected to remain around 11-12% in the next year. In 2022. Besides, the exchange rate management policy is also clearly shaped in the direction of stabilizing the value of the currency, thereby helping the USD/VND exchange rate to reduce ominous shocks from the international environment. Following the sideways trend is the main trend this year.

However, one factor that will create a change in the trend of inflation in the near future is the recovery of domestic consumption. After basically completing the vaccination in the country up to now, Vietnam has changed its response to the Covid-19 epidemic from applying strict social distancing measures to a safe adaptation strategy. accept cases in the community like most countries in the world.

The first step shows that in the first quarter of 2022, Vietnam is well controlling the number of serious illnesses and deaths, consumption activities tend to recover positively, and service and tourism activities are gradually reopening. again. Thereby, inflationary pressure from the demand side is expected to become clearer in 2022.

At the same time, domestic inflation will inevitably lead to the global trend of increasing cost-push pressure, due to prolonged supply chain tension and high international commodity prices. The world oil price has a direct impact on domestic inflation through commodities such as petroleum, kerosene and gas, accounting for a total proportion of nearly 6% in the consumer price index. Accordingly, when oil price increases by 10% & assuming the corresponding increase in domestic price, the impact will increase CPI by 0.6%.

Besides, the indirect impact is the increase in input costs for production and business, leading to pressure on the prices of other commodities. By analyzing and using quantitative models, the author estimates that if the world oil price increases by 10%, the indirect impact will cause the average inflation in the next 12 months to increase by 0.14%.

Thus, it can be seen that Vietnam’s inflation in 2022 still has certain supporting factors when compared to the global inflation correlation. However, in the context that international inflationary import pressure is very large and domestic demand-pull pressure also begins to recover, it is likely that inflation will no longer be able to maintain a low level as in the past. past time.

According to our forecast, if the world oil price is anchored at an average of 100 USD/barrel in 2022, inflation will tend to increase gradually towards the end of the year and the whole year average is expected to increase around 3.5 USD/barrel. % compared to 2021, continues to be within the target set by the National Assembly and the Government.

However, in the event that the world oil price rises higher than expected and averagely exceeds 120 USD/barrel, the pressure on inflation will increase and the target of controlling inflation below 4% will face challenges. considerable consciousness.


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