Power tariff hike not to have much effect on prices

He was referring to the recent increase in the retail electricity tariff from VND1,720 (7 US cents) per kWh to VND1,864 (8 cents), the eighth hike since 2010.

The 8.3 per cent hike will increase the inflation rate by an estimated 0.3 percentage points.

Analysts said the hike in power prices would result in a rise in the prices of many goods.

It will thus put pressure on production costs, eroding the competitiveness of the country’s goods at a time when it is deeply integrating into the international market.

To cut costs, some enterprises plan to shift their production from peak hours to off-peak hours.

But other experts said the power price hike could not be delayed any longer.

They said the hike should have been effected in 2018, but the tariffs were kept unchanged until March 20 this year in order to not rock the economic boat though the increasing cost of power generation had greatly affected the power sector.

The finances of the sector have recently taken a hit after the Government stopped subsidising inputs like coal and gas from the beginning of this year.

They also pointed out that the electricity price had been just above seven cents whereas they are eight cents in India and China, nine cents in Laos, ten cents in Indonesia and 11 cents in Canada.

But the higher tariffs now would only have a slight effect on prices and the GDP, they believed.

According to calculations by the Ministry of Industry and Trade and General Statistics Office, the hike will reduce GDP by 0.22 percentage points and increase consumer prices by 0.29 percentage points, they said.

Bao Viet Securities Joint Stock Company (BVSC) calculated that power-related goods only make up 3.5 per cent of the basket of goods and services used to calculate the consumer price index.

This means the power price hike would not have much of an effect on CPI.

In January, the Government decided to increase the environment tax on petrol, pushing up the price of fuel by 15 per cent and causing a 0.56 percentage point increase in inflation.

Besides, a Ministry of Health circular increases the prices of healthcare services at all hospitals by an average of 15 per cent this year, creating a 0.6 percentage point increase in inflation.

This year’s CPI will also be affected by an increase in the costs of educational services by 10 per cent this year, causing a 0.5 percentage point rise in inflation.

But BVSC analysts said they still think inflation this year would be kept at around 3.5 per cent and businesses would not be affected much by the power price hike.

They said they had reason to believe that the factors related to supply and demand would not create much inflationary pressure.

Meanwhile, most businesses have already made necessary preparations to cope with the increase in electricity prices since there was advance notice about the impending hike.