Markets & Prices

Last updated: Tuesday, April 23, 2019


2019 Inflation Forecast Below 4%

Posted: Tuesday, January 15, 2019

This is a forecast by economic experts at the Conference on Vietnam and Price Market Developments in 2018 and Forecasts in 2019, organized by the Academy of Finance under the Institute of Economics and Finance on December 3, 2019.

Falling oil prices and easing United States - China trade tensions will help rein in inflation in 2019.

Dr. Nguyen Duc Do from the Academy of Finance under the Institute of Economics and Finance pointed out many favorable factors for controlling inflation in 2019, including oil price plunges in the past two months, from above US$70 per barrel to under US$50.

Given the sharp fall in oil prices, inflation was only 2.98% in December 2018, a steep fall from 3.89% in the same month of 2017 and 3.98% in October 2018. This is a very favorable condition to curb inflation at below 4% in 2019.

In addition to oil prices, many other factors help curtail inflation in 2019. For instance, pork prices will be unlikely to increase; exchange rate pressures are forecast to be lower than in 2018 because the U.S. economy is expected to slow down and the U.S. Federal Reserve (FED)’s rate hike roadmap is also in the final stage, and the demand for U.S. dollar will not increase as much as before.

Another positive factor is U.S.-China tensions tend to subside. With these three factors, in 2019, the median inflation scenario will rise by 0.14% per month (not taking into account adjustments of electricity prices, health service prices and education prices), equivalent to underlying inflation growth in 2018. And, given this growth rate, on-year inflation in December 2019 is expected to rise 1.7% and the average inflation will climb just slightly above 2%.

In addition to the above advantages, the 2019 inflation scenario will also face many barriers. Dr. Le Quoc Phuong from the Industry and Trade Information Center under the Ministry of Industry and Trade said, world commodity prices are forecast to go up and the FED plans to raise interest rates at least twice in 2019, which would strengthen the U.S. dollar, thus placing pressures on exchange rate and inflation as well. Domestically, the relatively high GDP growth and the little-changed growth model caused pressures on inflation.

Furthermore, health and education service prices will continue to be raised locally according to the predetermined roadmap. Electricity price may rise incrementally after being kept at a relatively low level for a long time. Taxes on petroleum and oil prices which already reached the upper limit may cause inflation.

But, Vietnam also has many advantages to curb inflation. Accordingly, the consumer price index (CPI) has been lower than 4% and underlying inflation has been curbed below 2% in recent years. Given the abundant supply of goods and macroeconomic stability, inflation may be capped below 4% in 2019 as expected if solutions are implemented well, Dr. Phuong said.

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