At the seminar “Market developments, prices in Vietnam in the first 6 months and forecast for the whole year 2023”, organized by the Institute of Economics – Finance, Academy of Finance in Hanoi on July 4th, Dr. Nguyen Duc Do, deputy director of the Institute of Economics and Finance, stressed that over the same period, inflation peaked in January 2023 and fell even more than forecast, especially from the second quarter of 2023.

WHY IS INFLATION HIGH AND LOWER FOR THE YEAR, STRONGER THAN FORECAST?

dr analyzes the causes of the sharp drop in inflation in the first six months of 2023. Nguyen Duc Do identified three main reasons.

The first, The economic growth rate is low and all components of aggregate demand, such as investment and consumption, are growing slowly, accompanied by a decline in exports.

According to Mr. Do, the growth rate of the agricultural sector is even higher than that of industry and construction. Industrial production is the mainstay, plays the main role and used to be the driving force behind economic growth, but today growth is very low.

Also, consumption increased very slowly, especially after the Covid-19 period. Exports were also a driver, although growth was negative above 10%, partly due to strong growth last year. The decline in export sales and the lack of export orders, especially in some labor-intensive sectors such as textiles, clothing, shoes, electronics, etc., have caused a number of companies to face and overcome difficulties.

Monday, low money supply growth. As recorded, total payment assets up to June 20 have increased by only 2.53% compared to the end of 2022, less than the period of the Covid-19 epidemic.

The main reason for the slow growth of the money supply is on the one hand weak aggregate demand and low demand for credit and on the other hand commercial banks restricting lending when fears of bad debts increase. These causes result in the currency multiplier or the currency turnover rate being drastically reduced.

Ground Tuesday The reason why inflation is falling sharply is due to high real interest rates.

According to the state bank, the average interest rate on loans up to mid-June 2023 was 8.9%. Since the inflation rate is currently 2% over the same period, the real lending rate is 6.9%, five times higher than the GDP growth rate and the average real interest rate over the period 2013-2021. .9% and 4.6%. “It’s the interest rate that’s hampering economic recovery and growth and increasing bad debt,” Mr. Do admitted.

In addition, the oil market peaked last year and is in a downward trend. Although the future is unpredictable, there is a risk of a global recession, particularly in the US and Europe. The timing of the recession is disputed, but it’s likely to hit later this year or early next year. The main concern about the risk of a recession “overshadows” the world oil market.

“The risk of a global recession hangs like a ‘sword’ over our heads, making commodity speculators dare not speculate to drive up prices. These are the factors that will control oil prices in the near future despite the Russian war. – Developments in Ukraine are complicated and unpredictable,” said the deputy director of the Institute of Economics and Finance.

At the seminar, Mr. Pham Van Binh, deputy director of the Price Management Department (Ministry of Finance), also acknowledged that inflation tended to decline in the first half of the year for many reasons, including the large impact of interest rates. At the same time, the price trend on the domestic market tends to be favourable. Currently, as a permanent member of the Government’s Price Management Steering Committee since the beginning of the year, the Ministry of Finance has clearly identified and clearly recognized the challenges facing price management and price control as well as inflation control.

From there, the Ministry of Finance reported to the Steering Committee to develop scenarios, provide concrete guidance and solutions for price management and price administration, as this is a regular and continuous work.

4.5% inflation control targets are already within reach

Looking at market price movements and factors that will slow inflation in the second half of the year, Dr. According to Nguyen Duc Do, the risks of supply shocks such as oil prices and exchange rates like 2022 are also not high, which is favorable for controlling inflation.

As for oil prices, given the increasing risk of a global recession that could hit in late 2023 or early 2024, oil prices are likely to continue on the downtrend like they did last year, or at least not spike sharply.

The USD/VND exchange rate was also quite stable in the first 6 months of 2023 thanks to Vietnam’s trade surplus of USD 12.25 billion. With the USD also in a downtrend, it is likely that the USD/VND exchange rate will be held steady in the +/- 1-2% range by the state bank.

“Over the past year, the CPI has only risen by an average of 0.17%/month. Assuming this pace continues for the last 6 months of the year, annual inflation is forecast for December 2023. “Inflation will be at 1.7% and average inflation in 2023 will be at 2.5% ‘ predicted Mr. Do.

Therefore, according to this expert, all the factors that have influenced inflation in the past are very favorable, favorable in terms of controlling inflation, such as: B. weak aggregate demand, slow money supply growth, high interest rates, high interest rates and high interest rates. A stable price, making it difficult to raise oil prices sharply, will continue to be the factor controlling inflation over the past six months and even be a key factor in controlling inflation next year.

As the current domestic and international economic situation is not very positive and the State Bank has been cautious on monetary policy in the past period, inflation is likely to fall further in 2023 and aiming to keep inflation below 4.5% this year certainly be reached.