The "dual" success in price regulation in 2020

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Successfully control inflation

The pandemic not only has hit our country but also the whole world. In addition, African swine fever, natural disasters, droughts, floods and landslides continuously occurred, especially in the Central region in the last months of the year. This is the year with the lowest economic growth compared to the planned target and the lowest growth rate in many decades in Vietnam.

Through the practice of price management in 2020, the forecasting has been done well, such as forecasting pork prices, price trends of material, rice and some essential goods. Not only forecasting the prices of important and essential goods, the work has also been performed well through forecasting inflation. Setting up inflation scenarios to provide appropriate directions has contributed to keeping inflation in accordance with the set target.

The Ministry of Finance, as an important advisory body of the Government on price management, has demonstrated its capacity, responsibility and experience, especially the effective market responses through taking flexible tax adjustment measures, handling the increase and reduction in input costs for businesses as well as strictly controlling essential items to maintain common ground. This is one of the successes of the Ministry of Finance, which has contributed to the success of inflation control in Vietnam in recent years.

However, in the general context and compared with other economies, Vietnam has achieved impressive results. It has gained "dual" success, both with positive economic growth and inflation control which many other economies cannot achieve in 2020. Accordingly, the consumer price index (CPI) in 2020 increases by 3.23% compared to 2019, much lower than the National Assembly's target of less than 4%. Average core inflation in 2020 increased by 2.31% compared to that in 2019.

“Vietnam is resilient in a world of decline,” the World Bank's Chief Economist said.

According to the Price Management Department under the Ministry of Finance, from a socio-economic perspective, it can be seen that the management and administration of prices in the overall macroeconomic management task in 2020 has gone through a difficult year with many strong fluctuations and also multi-dimensional impacts. The objective impacts have posed the task of stabilizing the macroeconomy, promoting growth, and controlling inflation of the Government and ministries and sectors with huge challenges and there are many times we must consider bad scenarios for both growth and inflation.

Amid many challenges, the Government and the Prime Minister has directed ministries, branches and localities to strictly perform the management and administration of prices, closely coordinate to ensure the harmonization of goals, stabilizing the market price level, controlling inflation and removing difficulties for businesses. As a result, the average CPI in 2020 has reached the target set by the National Assembly.

As a standing agency of the Prime Minister's Steering Committee for Price Regulation, the Ministry of Finance has presided over and coordinated ministries and branches to advise the Government, the Prime Minister, and Deputy Prime Minister on major plans and orientations regarding price regulation and administration in each period, forecasting and building up price regulation scenarios in the short, medium and long term; synchronously implemented price policies, price stabilization measures, and directed ministries, agencies, provincial and municipal People's Committees to perform state management of prices in accordance with the Government's objectives and requirements on curbing inflation, while stabilizing the macro-economy in each period.

The highest inflation scenario still has positive signs

The economic picture for 2021 has been outlined through the targets approved by the National Assembly.

Accordingly, the key task is to continue to focus on implementing the "dual goal", both effectively preventing the pandemic, protecting people's health, and making good use of opportunities and efforts for socio-economic recovery and development in a new normal state.

In the near future, Vietnam's outlook is considered positive as the economy is forecasted to grow by 6.7% in 2021 and will stabilize around 6-7% in the following years. Along with that, the CPI is about 4%.

Many experts predict that the implementation of these targets will not be easy because uncertainties surround the economy. Many scenarios on inflation have been proposed, but all assumptions are that inflation in 2021 will be controlled according to the set target.

According to Deputy Director of the Institute of Economics and Finance Nguyen Duc Do, in 2021, the disease will be better controlled thanks to vaccines, the domestic and the world economy will be restored, the year-on-year inflation will increase again. However, with the year-on-year inflation at a very low level of 0.19%, the average inflation in 2021 will not be high, especially when the economy in 2021 will not be able to recover completely.

Do said that in 2021, in the case of strong fluctuations in petroleum products or food prices as in 2019, the average inflation in 2021 is likely to remain below 3%. In the lower scenario, Do forecasts that average inflation may be around 2%.

Dr. Nguyen Ngoc Tuyen, former Director of the Institute of Economics and Finance, predicts many essential goods will see many fluctuations in 2021, so the CPI will increase higher than in 2020, but the average for the whole year is only below 4% as the target set by the National Assembly.

Le Quoc Phuong, former Deputy Director of the Industry and Trade Information Centre (under the Ministry of Industry and Trade) also provided two forecast scenarios for the CPI. In the first scenario, when the Covid-19 pandemic is controlled, and the world economy restored, world prices increase sharply due to the dual effects of economic recovery and the impact of huge stimulus packages of countries, the price level of Vietnam will be under pressure to increase. If there are not appropriate and drastic measures, the average CPI in 2021 may be from 4% to 4.5%.

In the second scenario, when the Covid-19 pandemic cannot be controlled, the world economy does not recover, and Vietnam’s price level is difficult to increase, the forecasted average CPI in 2021 will reach 3.8-4%.

It can be said that many forecasts have been made by experts, but those are still positive scenarios thanks to the confidence in the administration by the Government and the Ministry of Finance.