A rebound in retail and consumption services and a rise in prices of input materials are expected to cause pressure on the country’s efforts to rein in inflation in the coming months.

The General Statistics Office (GSO) last week said that though the consumer price index (CPI) in the first four months of 2023 has been brought under control, at an on-year rate of 3.84 per cent, it may bounce back strongly in the months to come because of an expansion in travelling, ascending consumption of goods and services, and especially a climb in input materials used for production showing no signals of reduction.

In April, the total retail and consumption revenue in the country reached $22.2 billion, up 3.7 per cent on-month and 11.5 per cent on-year. The four-month figure hit $87.27 billion, up 12.8 per cent as compared to the same period last year, when the rate increased only 6.9 per cent on-year.

Also, the goods retail revenue in the first four months of 2023 stood at $68.75 billion – up 10.5 per cent on-year, in which the price of many important groups of items also climbed, such as food and foodstuffs (14.5 per cent), garments and textiles (9.8 per cent), transport (except for automobiles) up 4.1 per cent, and home appliances (2.4 per cent).

The four-month revenues from travelling services are estimated to be $395.65 million, which is 2.1 times higher than in the same period last year, thanks to a strong rebound in cultural and tourism activities taking place nationwide. Many localities with an increase in revenues from these services include Danang (6.3 times), Haiphong (3.2 times), Hanoi (three times), Ho Chi Minh City (up 84.5 per cent), Binh Thuan (up 75.2 per cent), Khanh Hoa (70 per cent), Quang Ninh (28.6 per cent), and Can Tho (15.7 per cent).

Notably, the total retail and consumption revenue in the country in the first four months of this year expanded 26.7 per cent as compared to that in the corresponding period of 2019, before worldwide lockdowns took place.

“We hope to welcome more new French tourists this summer. The situation has got much better, making it easier for travel firms to do business,” said Nguyen Van Tuan, director of Nam Phuc Travel JSC in Hanoi. “Our company has landed big orders from some partners in France. Normally, summer is when consumption services such as hotels, resorts, restaurants, and catering increases. This would mean prices will also climb.”

According to the Asian Development Bank (ADB), in Vietnam, services are expected to expand by 8 per cent in 2023 on revived tourism and associated services.

The GSO added that prices of many other services will increase, pressurising the CPI. In a specific case, Nguyen Thanh Minh and his wife were surprised at a 20 per cent rise in rental of his boarding house as of May 1. The couple are working for Japanese-backed FCC Vietnam at Thang Long Industrial Park, about 15km from the city centre.

“Nearly 1,500 workers at the company are staying in boarding houses in Dong Anh district and Xuan Dinh quarter nearby, and many of them said the rental has climbed by at least 20 per cent against 2021,” Minh said. “Previously our rental was about $52 per month, now it has increased to $65, excluding additional living costs paid due to escalating prices in the market.”

FCC Vietnam manufactures vehicle clutches and other automobile spare parts for Yamaha, Suzuki, and Honda, as well as partners in the US market.

In another case, Nguyen Viet Thang, vice director of Garment Materials in Hanoi, said that his company is employing nearly 1,000 workers and many of them are from other localities so they have to rent houses for living near the company.

“We have a policy to assist each worker for this cost. However, since early this year, the support has almost doubled due to a rise in rent,” Thang said. “This has, however, helped our company ensure production, with revenues in Q1 ascending 9 per cent on-year and export markets expanded to Indonesia, India, and Malaysia, in addition to the domestic market.”

According to the GSO, the rises in housing rents, coupled with big hikes in prices of fuel and other indispensable items in the market, are the main factors causing the CPI rise.

In addition, an expansion in public investment is also expected to increase inflation this year. The government is committed to disbursing $30 billion in the year, of which 90 per cent had been allocated to disbursing ministries and provinces as of January.

“On the demand side, domestic consumption will continue to rebound in 2023. Revived tourism, new public investment, and stimulus programmes initiated in January, and a salary increase effective in July are expected to keep domestic consumption on the rise, though higher inflation may hamper its recovery,” the ADB said.

The ADB suggested that Vietnam should continue to prioritise price stability because escalating geopolitical tensions and accelerating disbursement of public investment may still stoke inflation in 2023. Inflation is to increase slightly to 4.5 per cent in 2023, the ADB.

FocusEconomics Consensus Forecast panellists meanwhile expect Vietnam’s inflation to average 3.9 per cent in 2023 and 3.4 per cent in 2024.

Vietnam Investment Review