If electricity prices increase by 3%, what will happen to the consumer price index?

According to a decision by the Vietnam Electricity Group (EVN), from May 4th, the average retail electricity price will be 1,920.37 VND/kWh compared to the current price of 1,864.44 VND/kWh (excluding value-added tax), representing a 3% increase.

Regarding the impact of electricity price increases on the consumer price index (CPI), Mr. Nguyen Xuan Nam, Deputy General Director of EVN, stated: According to calculations by the Ministry of Finance, a 10% increase in electricity prices would impact the CPI by 0.33%; a 5% increase would lead to a 0.17% increase. Currently, the electricity price increase is 3%, so the impact on the CPI will be very small.

If we consider the impact on the costs of electricity-intensive industries such as steel, cement, and paper production, the cost of steel would increase by approximately 0.18%, the cost of cement by approximately 0.45%, and the cost of paper production by approximately 0.4%.

Illustration photo: Internet

Meanwhile, Dr. Nguyen Bich Lam, former Director General of the General Statistics Office, stated: Electricity is a special type of energy, a strategic commodity whose price is regulated by the State, and a crucial input cost used in almost all economic sectors and household consumption. A shortage of electricity will lead to production stagnation and disrupt people's lives. Therefore, an increase in electricity prices will certainly affect people's lives, businesses, and the CPI.

Electricity currently accounts for about 3.5% of the total CPI basket, so a 3% increase would directly contribute to a 0.105% increase in the CPI.

Nevertheless, Mr. Lam argued that electricity prices should have increased by 8%, regardless of the pressure it would put on inflation and reduce economic growth. Coal-fired, gas-fired, and oil-fired power plants account for more than 45% of the total national electricity production. In other words, electricity produced from fossil fuels accounts for a large proportion. Meanwhile, the price of coal used for electricity production increased by 264% in 2022 and the price of gasoline and diesel increased by 143% compared to 2021.

"Electricity prices were last adjusted upwards in March 2019, with an increase of 8.36%. Electricity prices haven't increased for four years, while a global energy crisis is underway," said Dr. Nguyen Bich Lam.

Concurring with this view, Associate Professor and economist Dinh Trong Thinh believes that the increase in electricity prices is reasonable because prices must fluctuate according to market forces.

"We need to consider that if input prices increase, output prices must also increase. With a 3% increase in electricity prices, while it will have a certain impact on people's lives and the economy, the predicted impact will not be significant," Mr. Thinh said.

According to Mr. Thinh's calculations, a 3% increase in electricity prices will cause the CPI to rise by 0.12%.

"This is also an insignificant figure, not very meaningful for the economy which is currently on a strong recovery path. However, it cannot be denied that the increase in electricity prices will have a certain impact on people's income and spending, and on the additional costs of some manufacturing and business enterprises," Mr. Thinh said.

Dr. Le Dang Doanh, an economic expert and former Director of the Central Institute for Economic Management, believes that, considering many factors, the current increase in electricity prices is unavoidable due to global inflation, the prolonged Russia-Ukraine conflict driving up the prices of fossil fuels and oil.

However, Mr. Doanh warned that it is inevitable that rising electricity prices will lead to price increases for other goods, because electricity is the main energy source for producing all goods, including agricultural products.

"Rising input costs for manufacturing industries will certainly impact the CPI and inflation. However, the extent of this impact needs to be calculated through multiple rounds, across many products, and with careful calculation methods to arrive at accurate results," Mr. Doanh analyzed.

Meanwhile, the news of a maximum 3% increase in electricity prices has caused many consumers to worry and feel apprehensive. Although the increase is insignificant, it is very likely that the prices of essential goods and products will also rise, driving up daily expenses.

Like gasoline, electricity is an indispensable commodity in the daily lives of any household. Furthermore, it impacts many other related goods, products, and services. In fact, increases in gasoline prices have previously led to significantly higher prices for many essential goods.

Furthermore, the increase in electricity prices could very well be seen as an "excuse" for essential goods to follow suit and establish a new price level. Remember, in July 2022, gasoline prices rose repeatedly and reached record highs. Immediately, the prices of a range of goods, from vegetables and fish to bowls of pho and vermicelli, also increased, establishing a new price level. It's noteworthy that even when gasoline prices cooled down, the prices of these goods either didn't decrease or only decreased slightly, and they still haven't returned to their previous levels.

"Now that electricity prices have increased again, I'm really worried about whether essential goods will also surge in price, similar to what happened with gasoline prices. But with the current spontaneous business model, it will be very difficult to control the arbitrary price increases by many small traders for profit. I believe the consumer price index will definitely rise, leading to an increase in inflation," said Pham Danh Thang (Hai Ba Trung District, Hanoi).

Dr. Le Dang Doanh, an economic expert and former Director of the Central Institute for Economic Management, believes that, considering many factors, the increase in electricity prices is currently unavoidable due to global inflation, the prolonged Russia-Ukraine conflict driving up the prices of fossil fuels and oil.

However, Mr. Doanh warned that it is inevitable that rising electricity prices will lead to price increases for other goods, because electricity is the main energy source for producing all goods, including agricultural products.

"Rising input costs for manufacturing industries will certainly impact the CPI and inflation. However, the extent of this impact needs to be calculated through multiple rounds, across many products, and with careful calculation methods to arrive at accurate results," Mr. Doanh analyzed.

Meanwhile, the news of a maximum 3% increase in electricity prices has caused many consumers to worry and feel apprehensive. Although the increase is insignificant, it is very likely that the prices of essential goods and products will also rise, driving up daily expenses.

Like gasoline, electricity is an indispensable commodity in the daily lives of any household. Furthermore, it impacts many other related goods, products, and services. In fact, increases in gasoline prices have previously led to significantly higher prices for many essential goods.

Furthermore, the increase in electricity prices could very well be seen as an "excuse" for essential goods to follow suit and establish a new price level. Remember, in July 2022, gasoline prices rose repeatedly and reached record highs. Immediately, the prices of a range of goods, from vegetables and fish to bowls of pho and vermicelli, also increased, establishing a new price level. It's noteworthy that even when gasoline prices cooled down, the prices of these goods either didn't decrease or only decreased slightly, and they still haven't returned to their previous levels.

"Now that electricity prices have increased again, I'm really worried about whether essential goods will also surge in price, similar to what happened with gasoline prices. But with the current spontaneous business model, it will be very difficult to control the arbitrary price increases by many small traders for profit. I believe the consumer price index will definitely rise, leading to an increase in inflation," said Pham Danh Thang (Hai Ba Trung District, Hanoi).