Lack of containers puts pressure on inflation

The shortage of containers extended delivery times to a high rate in a decade. Photo: Thái Bình

On February 1, IHS Markit announced the Purchasing Managers' Index - PMI for the manufacturing sector in Vietnam reached 51.3 points in January 2021, down from 51.7 in December 2020. It showed business conditions improved more slowly in early 2021.

The number of new orders continued to increase and some reports stated that customers increased the number of goods in their orders. However, the growth rate has slowed compared to December. Meanwhile, the number of new export orders has barely changed, with a decline in markets with cases of Covid-19 infections.

According to IHS Markit's report, the production situation of the manufacturing industry was almost stable in January 2021. While the increase in new orders was supported by output increases in some firms, others reported that the Covid-19 pandemic continued to cause reductions in output.

The activity of input purchases continued affecting supply chain disruptions in January 2021. In fact, the degree of prolongation of delivery times recently was the largest in almost a decade, except for the most difficult quarantine period due to the Covid-19 pandemic in March and April 2020. Companies reported shortages of containers coupled with the scarcity of raw materials.

Problems related to shipping and material supply have added to inflationary pressures. The growth rate of input costs has increased for the fifth consecutive month and is the fastest since June 2018. Output prices also rose for the fifth consecutive month at a modest pace and much weaker than input costs.

Firms wanted to prevent the escalation of raw material prices, companies increased inventory for two consecutive months.

Although producers remain confident about the next 12 months, business sentiment has fallen to a five-month low when there were concerns about the impact of the Covid-19 pandemic. In the case of optimistic firms, this reflects the hope to reduce the impact of the pandemic and plans to expand investment and production.

Commenting on the recent survey results, Andrew Harker, Economic Director at IHS Markit said: “Vietnam's manufacturing sector struggled to regain its growth momentum in early 2021 when the next influence of the Covid-19 pandemic and supply chain disruptions inhibited production. Survey data showed that while the Vietnamese economy remained one of the fastest growing globally, there were still significant difficulties that at least in the foreseeable future might hinder growth as spectacular as it was before the pandemic.”