Power, fuel price hikes may drive up CPI in Q2: VEPR

The report on Vietnam’s macroeconomic performance in the first quarter of 2019 found that the relatively high rise in prices of essential items, especially an 8.3% increase in the power prices last month, would affect the overall CPI, alongside creating a negative impact on interest rates, business competitiveness and gross domestic product (GDP) growth.

Inflation seemingly reemerged in the first quarter, since it rose slightly in the first three months of the year, at 2.56%, 2.64% and 2.7%, respectively.

Addressing a conference to announce the report, Nguyen Duc Thanh, head of VEPR, said the recent power price hike has stirred up the local market. Meanwhile, local firms are anticipating the introduction of policies that make price adjustments more predictable.

The Government in mid-2018 promised not to hike the electricity price for the rest of that year, while the prices of input materials for power generation such as coal, oil and machinery all increased. The electricity prices were then adjusted upward by some 8.3% on March 20, affecting the local market.

Macroeconomic policies are considered effective when they enabled local firms to forecast possible changes on the market and promptly adopt appropriate business plans, said Associate Professor Pham The Anh from VEPR at the event.

The upward adjustments of power and fuel prices were inevitable. Alongside this price hike, the upcoming spike of healthcare service prices and the environmental protection tax would place pressure on inflation in the second quarter, Anh added.

Further, according to Anh, inflation will push up production costs and interest rates.

Local firms are heavily dependent on bank loans. Once lending rates inch up, production costs at these companies would also rise while their competitiveness would fall. Economic growth would be affected in the end, he noted.

Regarding the country’s economic performance, data from the report showed that the GDP expanded 6.79% in the first quarter, below the year-ago figure of 7.45%. GDP in the second quarter is forecast to reach 6.32%.

However, the GDP target of between 6.6% and 6.8% for 2019, set by the National Assembly, is still attainable, according to VEPR.