Electricity price increases by 3%, what will happen to the consumer price index?

According to the decision of Vietnam Electricity Group (EVN), from May 4, the average retail price of electricity is 1,920.37 VND/kWh compared to the current level of 1,864.44 VND/kWh (excluding value added tax), corresponding to an increase of 3%.

Commenting on the impact of the electricity price increase on the consumer price index (CPI), Mr. Nguyen Xuan Nam - Deputy General Director of EVN - said: According to the Ministry of Finance's calculations, if the electricity price increases by 10%, the impact on the CPI will increase by 0.33%; if the electricity price increases by 5%, the CPI will increase by 0.17%. Currently, the electricity price increase is 3%, the impact on the CPI will be very small.

If calculating the impact on the cost of electricity-intensive manufacturing industries such as steel, cement, and paper production, steel costs increased by about 0.18%, cement costs increased by about 0.45%, and paper production costs increased by about 0.4%.

Illustration: Internet

Meanwhile, Dr. Nguyen Bich Lam, former General Director of the General Statistics Office, said: Electricity is a special type of energy, a strategic commodity whose price is controlled by the State, an important input cost, used in most economic sectors and household consumption. Lack of electricity will lead to stagnant production, disrupting people's lives. Therefore, increasing electricity prices will certainly affect people's lives, businesses and the CPI index.

Currently, electricity accounts for about 3.5% of the total CPI basket, so after increasing by 3%, the CPI will directly increase by 0.105%.

However, Mr. Lam said that electricity prices should have increased by 8%, regardless of the fact that it would increase pressure on inflation and reduce economic growth. The proportion of coal-fired thermal power, gas-fired thermal power and oil-fired thermal power accounts for more than 45% of the total national electricity output. In other words, electricity produced from fossil fuels accounts for a large proportion. Meanwhile, the price of coal used to produce electricity in 2022 increased by 264% and the price of gasoline increased by 143% compared to 2021.

“The last time electricity prices were adjusted up was in March 2019, with an increase of 8.36%. Electricity prices have not increased for 4 years, while the energy crisis is happening globally,” said Dr. Nguyen Bich Lam.

Agreeing with the above view, Associate Professor, Doctor, economic expert Dinh Trong Thinh said that increasing electricity prices is reasonable because prices must fluctuate according to the market.

“We need to consider that if input prices increase, output prices must also increase. With a 3% increase in electricity prices, although it will have a certain impact on people’s lives and the economy, it is not expected to be much,” Mr. Thinh said.

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

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

Dr. Le Dang Doanh, economic expert, former Director of the Central Institute for Economic Management, said that, considering many factors, increasing electricity prices is unavoidable at present due to the current inflation situation in the world, the prolonged war between Russia and Ukraine pushing up the prices of fossil fuels and oil prices.

However, Mr. Doanh warned that it is inevitable that the increase in electricity prices will cause other goods to increase as well, because electricity is the main source of energy to produce all goods, including agricultural production.

“Increased input prices of manufacturing industries will certainly impact the CPI and inflation. However, the extent of the impact needs to be calculated through many rounds, many products and with careful calculation methods to get accurate results,” Mr. Doanh analyzed.

Meanwhile, the news of a maximum 3% increase in electricity prices has many consumers worried and concerned. Although the increase is not significant, it is likely that essential goods and products will increase accordingly, pushing up daily expenses.

Like gasoline, electricity is an indispensable commodity in the daily life of any household. Not only that, it also affects many other related goods, products and services. In fact, the increase in gasoline prices has caused many essential goods to become significantly more expensive.

Furthermore, the increase in electricity prices is likely to be considered an "excuse" for essential goods to "follow the flow" and establish a new price level. Remember, in July 2022, gasoline prices increased continuously and reached a record high, immediately, the prices of a series of goods from a bunch of vegetables, fish to a bowl of pho, a bowl of vermicelli... also increased and established a new price level. It is worth mentioning that when gasoline prices "cooled down", the above goods still did not decrease or decreased slightly and until now have not returned to the old price level.

"Now that electricity prices have increased, I am really worried about whether essential goods will suddenly increase in price like what happened with gasoline prices. But with the current spontaneous business model, it will be very difficult to control the arbitrary price increases for the benefit of many small traders. In my opinion, the consumer price index will definitely increase, leading to an increase in the inflation index," said Mr. Pham Danh Thang (Hai Ba Trung, Hanoi).

Dr. Le Dang Doanh, economic expert, former Director of the Central Institute for Economic Management, said that, considering many factors, increasing electricity prices is unavoidable at present due to the current inflation situation in the world, the prolonged war between Russia and Ukraine pushing up the prices of fossil fuels and oil.

However, Mr. Doanh warned that it is inevitable that the increase in electricity prices will cause other goods to increase as well, because electricity is the main source of energy to produce all goods, including agricultural production.

“Increased input prices of manufacturing industries will certainly impact the CPI and inflation. However, the extent of the impact needs to be calculated through many rounds, many products and with careful calculation methods to get accurate results,” Mr. Doanh analyzed.

Meanwhile, the news of a maximum 3% increase in electricity prices has many consumers worried and concerned. Although the increase is not significant, it is likely that essential goods and products will increase accordingly, pushing up daily expenses.

Like gasoline, electricity is an indispensable commodity in the daily life of any household. Not only that, it also affects many other related goods, products and services. In fact, the increase in gasoline prices has caused many essential goods to become significantly more expensive.

Furthermore, the increase in electricity prices is likely to be considered an "excuse" for essential goods to "follow the flow" and establish a new price level. Remember, in July 2022, gasoline prices increased continuously and reached a record high, immediately, the prices of a series of goods from a bunch of vegetables, fish to a bowl of pho, a bowl of vermicelli... also increased and established a new price level. It is worth mentioning that when gasoline prices "cooled down", the above goods still did not decrease or decreased slightly and until now have not returned to the old price level.

"Now that electricity prices have increased, I am really worried about whether essential goods will suddenly increase in price like what happened with gasoline prices. But with the current spontaneous business model, it will be very difficult to control the arbitrary price increases for the benefit of many small traders. In my opinion, the consumer price index will definitely increase, leading to an increase in the inflation index," said Mr. Pham Danh Thang (Hai Ba Trung, Hanoi).