Higher global oil prices due to concerns over shortage in the short run, rising rice prices as a result of export bans by some countries, and increased house rent were the factors driving the August consumer price index (CPI) up by 0.88% against the previous month.

Downward inflation

Data released by the General Statistics Office (GSO) shows that the CPI in August edged up from July, however inflation has been contained at appropriate levels since the start of the year and is continuing its downward trend.

Specifically, compared to the same period last year, the CPI in January made the biggest gain at 4.89% and then dropped over the following months to 2% in June and 2.06% in July. The index rallied to 2.96% in August but was still lower than in the early months of the year. The average CPI in the first quarter rose 4.18%, while the respective figures for the first half and the first eight months of the year were 3.29% and 3.1%.

According to the GSO, the August CPI was mainly driven by housing rents and building materials, which rose by 6.65% from a year earlier as a result of rising cement, iron, steel and sand prices.

Food prices rose 3.04% due to increased demand during the festivals, while education costs soared by 7.28% as some localities began to raise tuition fees.

Conversely, reductions were seen in the prices of kerosene, cooking gas, and post and telecommunications prices.

The deceleration in the average CPI signals that the average CPI for the whole year is likely to be curbed at the target of 4.5%, landing within the scenario outlined by research organisations at the start of the year.

The Institute of Economics and Finance under the Ministry of Finance projected that inflation would peak in January and gradually fall to 3% by the end of the year, while the average inflation of 2023 would hover around 3.5%.

In its three growth scenarios for 2023, the Central Institute of Economic Management predicted that inflation could be 3.43%, 3.87% and 4.39% corresponding to economic growth rates of 5.34%, 5.72% and 6.46%.

But the GSO noted that core inflation in the first eight months of the year already reached 4.57%, which is much higher than the headline inflation (3.1%) and the figures during the same period in the years from 2019 to 2022. This is a challenge to monetary policy, which should be carried out proactively and flexibly to both curb inflation and spur economic growth.

Room for prioritising growth

According to calculations of the BIDV Training and Research Institute, Vietnam’s inflation in 2023 is expected to reach 3.5-4%, providing room for measures to bolster economic recovery and growth.

BIDV senior economist Can Van Luc said the grounds for such a statement are that the amount of money supplied to the economy remains low and the money circulation is slow, and it is not a cause for concern if it accelerates in the final months of the year.

He said “Many are wondering if Vietnam relaxes its monetary policy too soon, which can affect inflation and cause instability, but based on data on the money supply, money circulation and average prices, we think that there is no need to worry about inflation.”

Low inflation in the first half of the year is a favourable condition for the government’s regulation work. On the foundation of macroeconomic stability, the government has shifted its policy priority to bolstering economic growth in alignment with curbing inflation and ensuring the major balances of the economy. With this in mind, Vietnam has relaxed its monetary policy step by step by lowering interest rates to inject money into the economy.

To keep inflation within the target set by the National Assembly, the GSO recommended closely monitoring the developments of prices and inflation in the world and promptly issuing warning on the factors that affect domestic prices and inflation so as to take appropriate actions to ensure domestic supply and stabilise prices.

The government should continue to carry out its monetary policy in a proactive, flexible and prudent manner and combine it with fiscal policy and other macroeconomic policies to keep inflation in check and provide sufficient capital for the economy.

Source: Nhân Dân

One of the most prominent trends is the relentless march of globalisation. Vietnam’s strong integration has provided it with the chance to embed Vietnamese products deep within the global value chain, access foreign technologies at a cheap cost, and tap into the vast reservoirs of cross-border data. These opportunities beckon, waiting to be harnessed.

The second strand is the sweeping transformation of the global economy, characterised by the shift in supply chains, catalysed by events like the COVID-19 pandemic, with multinational giants seeking new shores for their operations. Corporations such as Apple and Intel have begun to relocate factories to Vietnam, drawn by its burgeoning capabilities and stable political environment.

The third trend involves the shift of supply chains away from politically unstable regions, notably prompted by the Russia-Ukraine conflict since 2022. Vietnam, being politically stable, has become an attractive destination, with companies relocating to access the Western European market and a surge in Foreign Direct Investment (FDI) into Southeast Asia.

As these threads converge, Vietnam emerges as a protagonist in the saga of global supply chains. Its geopolitical position in the Asia-Pacific region and the world is pivotal. The East Sea, with its strategic maritime routes, serves as a vital artery for global trade and international transport, ensuring the seamless flow of commerce. Political stability, bolstered by a youthful workforce and improving infrastructure, beckons manufacturers, investors, and global procurement titans from around the world.

Yet, along with opportunities, Vietnam is facing many challenges. Competition among Vietnamese products in the local market is fierce. Businesses face the pressure to improve productivity and quality. Institutions and workers need to adapt and come up with new ideas, and there’s a need for big investments in things like roads and power to handle the changing supply chain.

Sharing at the seminar on opportunities and challenges for Vietnam to be a strategic location in the global supply chain on Tuesday, Nguyen Thang Vuong, head of the Department of European and American Markets under the Ministry of Industry and Trade emphasised the resonance of the global supply chain shift.

For example, Apple has relocated 11 factories producing audio-visual equipment to Vietnamese shores. Intel, too, has expanded its chip-testing empire in HCM City and Denmark’s Lego Group enters the fray with a billion-dollar investment in Bình Dương Province, a testament to Vietnam’s allure.

Corporate titans like Boeing, Google and Walmart have also expressed their intent to spread their wings across Vietnam’s business landscape. Samsung, in a move that echoes through the global tech industry, relocates its entire phone production line to Vietnam and India, with 60 per cent of Samsung’s global smartphone sales now hail from Vietnam.

The relocation of factories to Vietnam, laden with opportunities, also carries the weight of challenges.

According to Do Thi Thuy Huong, deputy chairwoman of the Vietnam Association for Supporting Industries (VASI), emphasised the imperative of robust government policies and support mechanisms for local businesses. They must be equipped to embrace technology, outshine competition and retain their share of the domestic market. Moreover, the technology that enters Vietnam’s shores must be environmentally friendly and conducive to nurturing local suppliers, all within a specified timeframe.

Ngo Khai Hoan, deputy director of the Department of Industry, added a note of caution. Many Vietnamese businesses, while participating in the supply chain, hover at the intermediate stage with limited added value. The raw materials needed for industries like manufacturing, processing, textiles and footwear often arrive from foreign shores. With labour costs rising, Vietnam risks losing its once-advantageous position in cheap labour to countries like India, the Philippine, and Cambodia.

Foreign investors now cast a discerning eye on Vietnam’s domestic supporting industry capacity, Hoan said and emphasised to welcome this influx, the Department of Industry gears up for policy formulation and capacity-building endeavours. These initiatives encompass training and support for local enterprises, along with fostering connections between domestic businesses and global giants like Samsung and Toyota.

“Decree 111/2015/ND-CP issued in 2015, crafted to nurture supporting industries, may need revisions to further empower domestic businesses. The Ministry of Industry and Trade envisions a landscape where these enterprises stride confidently, enjoy enhanced incentives and sharpen their competitive edge against foreign rivals,” Hoan said.

Source: VNS