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A test for the economy in the face of unpredictable fluctuations in gasoline prices

17:07 | 03/10/2022

VCN - Although the price of gasoline has decreased at the moment, there is no sign that the price of this commodity will be stabilized soon and the prospect of a price increase is still in sight.

Logistics enterprises and shipping lines make great profits Logistics enterprises and shipping lines make great profits
Enterprises proactively respond to market fluctuations Enterprises proactively respond to market fluctuations
Checking price-forming factors when commodities have abnormal fluctuations Checking price-forming factors when commodities have abnormal fluctuations
A test for the economy in the face of unpredictable fluctuations in gasoline prices
The need for a comprehensive solution to operate the petroleum market stably is an urgent requirement to reduce inflation pressure. Photo: Thu Diu

Therefore, there is an urgent need for a comprehensive solution to operate the petroleum market stably to reduce inflation pressure.

Inflation impact increased from 1.44-2.7%

According to the General Statistics Office, a 10% increase in gasoline prices will increase inflation by 0.36% and economic growth decrease by 0.5%. Petrol prices affect the prices of other input materials, directly affecting the whole economy. Each time the price of petrol increases, the price of goods immediately sets a new peak, causing difficulties in people's daily life. In the face of instability in the international petroleum market, domestic prices will have many fluctuations in the near future because the domestic gasoline price depends greatly on the world gasoline price and the domestic petroleum supply does not meet the demand of the economy.

Mr. Le Tuan Anh, Director of the Department of Industrial Economics (Ministry of Planning and Investment), said that petroleum accounts for a high proportion of the total production costs of economic sectors. For example, in the total cost of production, the cost of petroleum accounted for 76.73% for fishing activities; accounting for 63.36% for transportation activities; 45.18% for coal mining.

When gasoline prices rise and stand at a high level, input costs will increase, while the selling prices of goods and services cannot increase respectively because during and after the pandemic the purchasing power of the economy is weak, and aggregate demand for consumption declines. According to calculations, if the average world crude oil price in 2022 is at US$100-125/barrel, then domestic petroleum will increase by 40-75% on average, then the petrol factor alone has an impact on inflation of the economy increased from 1.44-2.7%.

From a business perspective, Mr. Le Quang Trung, Vice Chairman of Vietnam Logistics Association, Deputy General Director of Vietnam Maritime Company, shared that oil and energy prices greatly affect the activities of logistics enterprises. For road, rail, air and sea transport services, the cost for logistics is 16.8% of the value of the goods – this is a very large number.

For businesses, logistics costs can be up to 60-65%. Fuel costs for transport enterprises account for 30-40% of the cost structure. When fuel prices increase by 10-15%, transportation costs will have to increase accordingly.

Gasoline price fluctuations have a direct impact on income, expenditure and life of people as well as businesses due to the high cost of production and distribution of goods and services, increasing the consumer price index (CPI). The incessant fluctuations of gasoline prices require response scenarios in order for the economy to maintain stable and sustainable growth.

Which solution?

Facing with the pressure of oil prices, the Government has implemented many policies and solutions to stabilize the macro-economy and support businesses. The management of domestic gasoline prices is closely following the movements of world gasoline prices; at the same time flexibly use the Petroleum Price Stabilization Fund to minimize the increase in domestic gasoline prices.

According to Mr. Le Tuan Anh, if adding the standard costs of petrol and oil trading and the profit, the proportion of taxes and expenses in each liter of petrol is about 35% of the cost. The National Assembly Standing Committee has agreed to reduce the environmental protection tax (reducing gasoline from 4,000 VND/liter to 1,000 VND/liter, reducing oil from 2,000 VND/liter to 500 VND/liter); The Government is considering a proposal to the National Assembly to reduce VAT and Special Consumption on petrol and oil, to support transport enterprises.

In addition, the Government will also implement many solutions such as strengthening the management, inspection and supervision of petroleum business activities in the country in order to stabilize the petroleum market, avoid speculation and profiteering; control petroleum smuggling in border areas.

At the same time, develop scenarios for GDP growth and inflation control, and provide appropriate and flexible management solutions.

According to Mr. Phan Duc Hieu, Standing Member of the Economic Committee of the National Assembly, the role of the Government can only help to stabilize prices to a certain extent.

Meanwhile, it is difficult to predict oil prices, because the basic factors based on forecasting are difficult to predict. Accordingly, what needs to be done is to respond to volatility. Specifically, in recent years, the Government has taken many measures to ensure the stability of fuel prices.

Currently, the Government is assigning the Ministry of Finance to review tax policies for energy products, petroleum, etc. In addition to solutions to support component costs, it also refers to ensuring energy reserves, developing energy reserves, improving domestic oil refining and petrochemical exploitation capacity to ensure the long-term supply for the economy, reducing dependence on the rise of world gasoline and oil prices.

By Xuan Thao/QuynhLan