Vietnam to see inflationary pressure ease in H2, policy rate may stay steady: HSBC
Inflationary pressure in Vietnam is likely to wane in the second half of this year with unfavorable base effects expected to fade soon, allowing the central bank to remain accommodative, HSBC says in its latest note.
Consumers shop at an MM Mega Market outlet. Photo courtesy of Cong Thuong (Industry and Trade) newspaper.
Inflation in July continued to hover close to the government’s 4.5% ceiling. Headline inflation rose 0.5% month-on-month on the back of still-elevated commodity prices and idiosyncratic factors such as higher health insurance premiums.
This has translated into a rise of 4.36% year-on-year, broadly in line with market expectations (HSBC: 4.3%, Bloomberg: 4.3%). With “unfavorable base effects to fade soon, pushing inflation notably lower in H2/2024,” HSBC researchers expect inflation to average around 3.6% for the whole year of 2024.
With price pressures relatively contained and the domestic sector requiring more time to firm up, the researchers expect the State Bank of Vietnam, the country’s central bank, to remain accommodative and keep its policy rate steady through their forecast horizon at 4.5%.
This will likely help the Vietnamese government achieve its 6.5% growth target this year, the highest in ASEAN.
Vietnam has raised the monthly base salary for public employees by 30%, from VND1.8 million ($70.7) to VND2.34 million ($92), starting July 1. This is the most substantial increase in years after adjustments got delayed due to Covid-19.
The latest wage increase has triggered concerns over spillover effects on prices of essential consumer goods, affecting the inflation target of 4-4.5% in 2024.
Nguyen Bich Lam, former director of the General Statistics Office, remained optimistic about the country's ability to curb inflation in 2024, amid still weak consumer demand.
Besides factors that create inflationary pressure like higher prices of rice, electricity, healthcare and education services, several others help curb inflation, including an abundant source of food that meets domestic consumption and export needs, and tax support policies such as environmental tax reductions on gasoline and VAT cuts, he noted.
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