Immediate hike risks tackled as inflation squeezes workers

Many people remain surprised by record-beating petrol prices, Le Toan

The Ministry of Industry and Trade (MoIT) last week warned that prices of fuel, commodities, and input materials, especially imported ones, are forecasted to continue hovering at a high level, causing a continued hike in prices of goods in the domestic market and greatly affecting business and production activities.

“The Russia-Ukraine conflict continues to have major impacts on the supply chains and on prices of crude oil from Russia, pushing up prices in those markets and accordingly pressuring prices in the world market. Increased prices of key goods including petrol and gasoline, fertiliser, and foodstuffs will affect Vietnam’s production activities,” said an MoIT report on Vietnam’s industry and trade situation. “In addition, the drastic implementation of the government’s economic stimulus packages will spur economic growth but increase inflation pressure.”

By late last week, the global average price of Brent crude oil and WITI crude oil hovered at $115.70 and $111.80 per barrel, respectively. In Vietnam, the price of E5 RON 92 petrol was raised by the MoIT and the Ministry of Finance (MoF) to $1.36 per litre, and that of RON 95 petrol climbed to $1.43. RON 95 has become all the more popular in the market, accounting for 70 per cent of total petrol consumed in Vietnam.

Meanwhile, the diesel price increased by 4.3 US cents to $1.30. This has been the seventh consecutive rise of such prices over the past few months, driving many enterprises and labourers into bigger difficulties.

Do Xuan Hue, who has been working for My Dinh Taxi for eight years, last week decided to quit his job due to “the unbearable petrol price hike.”

“Never before have we seen such a big rise in petrol prices. One year ago, the petrol price of RON 95 was only 83 US cents, meaning that it has increased by over 40 per cent so far. Meanwhile, we cannot raise the charges as if we do that, we will suffer from a reduction in passengers,” Hue said. “The sharp increase in petrol prices will have an impact on both the economy and the status of businesses. My Dinh Taxi has about 300 taxis, meaning hundreds of families are being affected.”

Each day, Hue spent $17-26 on petrol for every 200-300km. “Over the past few months, I have had to spend another $2.20-4.35 a day on petrol due to the price hikes. I cannot continue my job now. I will halt from this week and resume when the petrol price falls,” said Hue, who is a father of two with an unemployed wife.

According to the Hanoi Taxi Association, petrol prices account for 40 per cent of the transportation cost, so the sharp increase in fuel prices recently has made it difficult for businesses. The price of travel cannot increase according to the price of fuel because businesses have to compete with other ride-hailing platforms.

The General Statistics Office said that increases in fuel prices will lead to an expansion in transportation costs and according to the chain effect, it will cause the price of input materials to soar.

In a specific case, Nguyen Xuan Son, vice director of marketing at Vietnam-Taiwanese joint venture Garment Materials JSC in Ho Chi Minh City, said his company had to pay an additional $8,700 for importing 10 tonnes of cloth and button materials. “But the firm has yet to mull over a plan to raise selling prices as if it does that, there will be a loss of orders from customers,” Son said. “We don’t know how long this situation will last, but everything is becoming increasingly difficult now. We are having to pay more for production.”

The International Monetary Fund said that inflation in Vietnam is expected to expand to 3.9 per cent by end-2022. Growth risks are tilted to the downside while inflation risks are tilted to the upside. The risks include the intensification of geopolitical tensions and a slowdown in China, a tightening of global financial conditions and developments in the local property and corporate bond markets.

Vietnam expects it can control inflation at about 4 per cent for the whole year.

Meanwhile, the World Bank commented that in Vietnam, rising consumer and producer prices warrant close monitoring of domestic price developments as rising inflation would affect the recovery of domestic consumption and economic growth.

“While the consumer price index increases have been subdued in 2021 due partly to slack in aggregate demand, accumulated increases in intermediate and producer price index in the last three quarters could impact production decisions and translate into higher consumer prices, especially food prices,” said the World Bank in its latest bulletin on Vietnam.

According to the MoIT, if there are continued hikes in petrol prices, it will continue working with the MoF and will apply a number of solutions including “the continued usage of the Price Stabilisation Fund to monitor the fuel price”.