Purchasing power awaits the impetus for a breakthrough.

Value-added tax decreased by 2%, while wages increased by 20.8%.

From July 1st, according to Government Decree 24/2023, the basic salary for civil servants, public employees, and members of the armed forces will be adjusted upwards from VND 1.49 million/month to VND 1.8 million/month, equivalent to a 20.8% increase compared to the current basic salary. Similarly, according to the joint resolution passed by the National Assembly on the afternoon of June 24th, from July 1st, the value-added tax (VAT) will be reduced by 2%, to 8% by the end of this year. However, this tax reduction does not apply to telecommunications, real estate, securities, insurance, banking, metals, refined petroleum, mining, and other goods subject to special consumption tax.

Authorities need to closely monitor the situation to avoid a situation where wages increase by 1 unit while prices increase by 2 units in the near future.

Ms. Tran Thu Hoai (residing in District 3, Ho Chi Minh City), an accountant at a shipping company, said that the increase in the basic salary by more than 20% has created a rather optimistic mood among civil servants and public employees. She said: "My current salary is over 9.089 million VND, based on a salary coefficient of 6.1, and from July 1st it will increase to 10.98 million VND. This is an increase of nearly 2 million VND/month, which means a family of two will gain an additional 4 million VND/month. After 4 years (from July 1st, 2019) with that increase, it only averages an increase of 500,000 VND/month, but that's still much better than the current frugal spending habits."

Mr. Nguyen HT (residing in District 7, Ho Chi Minh City), a customs inspector, enthusiastically said: "The increase in the basic salary is great news." Mr. HT's current basic salary is nearly 11.4 million VND/month, and after July 1st, it will increase to 13.75 million VND/month. "The salary increase and the 2% reduction in VAT at the same time mean we can spend a little more. For example, we can afford to eat out more often, and we can buy more essential household items. Generally, for salaried workers, from senior specialists to civil servants, hearing about an increase is exciting. That's a psychological factor that will help stimulate consumption in the coming period," Mr. HT said.

Notably, the survey shows that the prices of many essential goods on the market are sharply decreasing compared to the same period last year. For example, vegetables such as lettuce, watercress, and kale are now down by about 20-30% compared to the same period last year, and spices are also down by 10-20%. Retail pork prices have decreased by more than 16% from 180,000 VND/kg to 150,000 VND/kg for pork belly; industrial chicken eggs have decreased from 40,000 VND/dozen to 30,000 VND/dozen; Cabbage prices have dropped by 35-40%, averaging from 50,000 VND/kg to 30,000-35,000 VND/kg… Notably, compared to June 2022, current gasoline prices have decreased by 33%, from over 32,000 VND/liter to 22,000 VND/liter; diesel fuel has decreased by 39%, from 30,000 VND/liter to over 18,000 VND/liter; and gas prices are 16.6% lower.

Mr. Pham V. Viet (residing in Thua Thien- Hue ), the owner of a freight transport business, said that thanks to the decrease in fuel prices, freight rates have decreased by more than 5% compared to the beginning of this year, and by 15-25% compared to the same period last year.

Ms. Hoang Thi Kim Phuong (residing in District 11, Ho Chi Minh City), a retired tax official and "housewife expert who goes to the market every day," shares the same observation: current commodity prices have decreased compared to the same period last year, especially for vegetables, fruits, meat, and fish in the market. "But the price of a bowl of pho or a plate of noodles at restaurants hasn't decreased. The market for restaurants is still very slow; input costs have decreased significantly, but the selling price of a bowl of pho increased by 5,000 VND before Tet, reaching 45,000 VND, and remained at that level after Tet. Meanwhile, at the same time last year, it was 35,000 VND per bowl. But it's true that never before have consumer goods prices decreased as much as they have now, right before a basic salary increase. Hopefully, this downward trend will continue until the end of the year so that salaried workers can have an easier time. In reality, gasoline and oil prices have decreased throughout the past year, and commodity prices have decreased, but not proportionally," Ms. Phuong said.

"Inflation is a potential threat."

Associate Professor Dr. Dinh Trong Thinh, a senior lecturer at the Academy of Finance, believes that the goal of increasing the basic salary is to increase income and improve the living standards of workers. This goal cannot be achieved if inflation is not effectively controlled, and the consumer price index and prices of essential goods increase in parallel with or faster than the increase in salary. "However, according to our assessment, inflation this year will be difficult to increase, remaining within the 3.5-3.8% range, as set by the National Assembly and the Government ," Dr. Thinh predicted.

The risk of price increases is due to an increase in the money supply in circulation as money flows out of banks and rising wages push more money into circulation. Inflation is a real possibility. Therefore, it is essential to have inflation control tools ready to respond promptly in the fourth quarter of this year.

Associate Professor Dr. Nguyen Thuong Lang (Institute of International Trade and Economics)

This expert analyzed: Inflation has decreased despite wage increases, thanks to the reduction in VAT, which has led to a drop in the price level of essential goods. Overall, prices have decreased by 1.5-1.7% compared to the previous period, a factor contributing to the reduction in inflation. In addition, wage increases and tax cuts to stimulate demand at this time are very good for export companies facing difficulties in foreign markets, giving them a better chance to return to the domestic market. Observations show that major export markets saw a significant increase in orders in May and June. Thus, the potential for export growth in the last two quarters of the year is higher. Information also indicates that some businesses expanding their export markets to many countries have seen a significant increase in orders over the past two months.

"Therefore, increased production, increased income, plus newly generated income… will boost domestic consumption. Inflationary pressure is noteworthy, but world prices have not increased recently, and many items are even decreasing significantly compared to last year; fluctuations in world oil prices are also within a controllable range, so there is no cause for concern. What we are very concerned about is that the management agencies, which have experience in managing commodity prices in the market in the past, need to monitor more regularly and closely, and if they see signs of a 1-fold increase in wages while prices increase by 2 times, they should immediately issue a warning," said Associate Professor Dr. Dinh Trong Thinh.

Meanwhile, Associate Professor Dr. Nguyen Thuong Lang (Institute of International Trade and Economics) predicts that a new price level for goods and wages will be formed as income increases and taxes decrease, which will certainly lead to increased spending. This is also the goal of policymakers to stimulate demand in the last six months of the year, and this is a very timely and commendable policy. On the other hand, according to the expert, lending interest rates are also starting to decrease, and it is expected that business costs will decrease in the last two quarters of the year. Businesses will face less difficulty in input costs, helping to stabilize the price of manufactured goods. In addition, the predicted increase in consumer spending will have a double impact on aggregate demand. Furthermore, "the risk of price increases due to increased money supply in circulation as money flows out of banks, and rising wages push more money into circulation. Inflation is likely to lurk. Therefore, it is essential to have inflation control tools ready to respond promptly in the fourth quarter of this year," Dr. Lang advised.

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