The general Statistical Office has published the consumer price index (CPI) of February 2019. Accordingly, consumer price indexes increased moderately. CPI in February increased 0.8 percent over the previous month and increased 2.64 percent compared to the same period last year. Average CPI of the past two months increased by 2.6 percent compared to the same period in 2018.
The highest CPI increase happened in food and service groups when their price index increased by 1.73 percent compared to January due to high demand before Tet holiday.
From a broader view, inflation rate has been declining, especially since October 2018 when domestic gasoline prices plummeted, reducing the cost of other goods and services. Although a slight increase in gasoline price starting from 3pm March 2, 2019 was just announced, the price of E5 RON 92 gas decreased from 20,906 dong as litre in October 2018 to 17,210 dong (equivalent to 17.7 percent over more than 4 months). On the world market, WTI oil prices in April fell from $76.4 a barrel to around $55 (equivalent to 28 percent), which was the main reason for the drop of domestic gasoline prices.
Monetary policies at many major Central Banks around the world are tightened since FED has continuously raised interest rates since 2018. That tension can also be experienced in Vietnam since inflation rate suddenly surged in the third quarter of 2018. At that time, the consumer price index in June 2018 increased to 4.67 percent compared to the same period in 2017. To support local currency, central banks normally have to raise the operating interest rate to attract money from the population and reduce money supply to control inflation. This combined with high cost of capital (rising interest rates) may halt the growth of businesses, putting more pressure on economic growth. Experts’ opinions mostly lean toward loosening monetary policy in 2019 and expect slow economic growth.
However, at the hearing before the Senate Committee on February 26, Federal Reserve’s Chair Jerome Powell warned that ‘crosscurrents’ and ‘conflicting signals’ have weakened the ability to continue raising interest rates and made the positive economic outlook less certain. Reacting to the possibility that Fed may slow down the interest rate increase in 2019, the prices of basic commodities worldwide remained low and the cost of medical and education, which rose sharply in 2017 and 2018, may rise at a much lower rate. Apparently, inflation risk in operating monetary policy in Vietnam in 2019 has been somewhat reduced.
At the beginning of 2019, the State Bank of Vietnam (SBV) proposed a draft of reducing compulsory reserve for credit institutions. prime minister Nguyen Xuan Phuc on the morning of March 1 at the regular meeting of the government also directed: ‘To promote stronger growth, the SBV instructs credit extension and interest rate reduction for priority areas starting from March.’
Deputy prime minister Vuong Dinh Hue, Head of the Price Steering Committee, set a goal for ministries, branches and local authorities to manage the consumer price index in the range of 3.3-3.9 percent to meet the requirements in the Resolution No. 01/NQ-CP dated January 1, 2019, which is to control this index below 4 percent. With this determination, it is expected that the government continues to carry out economic support and loosen monetary policy in order to achieve economic growth of 6.66.8 percent set by the National Assembly in 2019.
