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Globe faces high inflation, Vietnam deals with challenges

The world is witnessing the highest inflation in decades. Many economies around the world face a risk of recession.

The US inflation in March was at a 40-year high: +8.5% year on year due to a sharp increase in gas prices. This is the first time in more than four decades that US inflation has surpassed 8%. Inflation in the US shows no signs of reduction. That is why the US Federal Reserve (Fed) can quickly reverse the easing of monetary policy.

Meanwhile, the United Nations said food prices hit record high levels last month because of supply disruptions caused by the conflict in Ukraine. The food index in March increased by 12.6% compared to February while the February index was the highest since the index was launched in 1990.

Inflation is seen in many parts of the world when the Covid pandemic still rages and the Ukraine conflict is ongoing. Earlier, it was forecast that commodity prices would cool down as economies recover after the pandemic. But the Russia-Ukraine conflict has pushed commodity prices up.

Global supply chains, which have broken since the pandemic broke out, is now under pressure from the Russia-Ukraine conflict. Rising food and energy prices threaten the economies of European countries.

Western countries face the highest inflation in more than four decades, with most countries reporting inflation rate above 5%. The UK witnessed the highest inflation in three decades with the CPI in March up by 7% year on year. Real household income in the UK is forecast to fall this year at the sharpest rate since the 1950s.

In the eurozone, inflation in March rose to 7.5%, much higher than 5.9% in February. Fuel prices continued to wreak havoc on economies in the region. Food prices also hit many families. Germany recorded a shortage of vegetable oil, because the world's leading sunflower oil market is Ukraine.

More than half of emerging economies recorded an inflation rate of above 7%.

Vietnam in trouble

Also hit by the storm of oil and food prices, Vietnam’s CPI in March increased by 1.91% compared to December 2021 and by 2.41% over the same period in 2021.

Standard Charter forecasts that Vietnam's inflation will exceed the target of 4% set by the National Assembly (much higher than 1.84% in 2021) and may rise even higher in the next year, at about 5 5% due to increased demand when the economy recovers.

Vietnam, like China and Japan, has a relatively low inflation rate. In the past year, all three countries had low inflation rates. Japan even had very low or negative inflation rates for decades. However, it is predicted that inflation in Japan may rise to 2.7% this year.

For Vietnam, inflation has been controlled well and people have not fallen into the price storm because Vietnam's consumption habits and structure are different from other countries. While the US and Europe spend a lot on housing, electricity, water, gas, transportation, entertainment, Vietnam spends a lot on food (about 27.7%).

The sudden increase in crude oil and gas prices caused inflation in the West to rise to a record high, while Vietnam has abundant food sources with great export capacity, thus it has suffered less from inflation. Gasoline prices in Vietnam are also controlled through lower environmental fees.

However, inflation pressure is still high because many of Vietnam's leading trading partners such as the US, Korea, and Europe recorded a sudden increase in the prices of goods and services.

The central banks of many developed countries’ plan to increase interest rates that will affect capital flows and inflation in other regions, including Vietnam.

The European Central Bank (ECB) has announced plans to end its extensive bond-buying program to pave the way for interest rate hikes. The Bank of England (BoE) has raised interest rates three times since December 2021 and is likely to raise interest rates again this month.

The US Federal Reserve (Fed) has raised interest rates once (25 percentage points) and will probably increase interest rates continuously this year (about 6 times). It is likely that the Fed will increase by 50 basis points at the meeting in May.

Most countries have little room to spur growth. The risk of recession is becoming more apparent.

It is said that monetary policy has little impact if high inflation is due to supply shocks and the labor market has not recovered. Monetary policy will make a slow and minimal impact on the job market and aggregate demand.

For Vietnam, interest rates are still quite high, inflation is still low, and economic growth is among the top in the world. There is still room for economic stimulus.

In a recent report by SSI Research, interest rates have bottomed. Recently, deposit interest rates for businesses have inched up at some big banks.

According to MBS, as an economy with a large openness (import and export revenue equal to 200% of GDP), Vietnam cannot avoid the impact of inflation pressure from other economies. The gasoline prices in Vietnam recently increased sharply and reached an all-time high of 30,000 VND/liter, leading to an increase in the prices of other commodities and finally the inflationary impact. The increase in gasoline prices has a great impact on production, consumption and service industries.

However, Vietnam has seen inflationary pressure caused by Covid-19 later than other countries. Some institutions forecast that Vietnam will control inflation at 3-4% in 2022.

M. Ha

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