Vietnam’s inflation nears limit in May

Vietnam’s annual inflation rate rose to 4.44 per cent in May, approaching the government’s target ceiling of 4.5 per cent for the year, Reuters reported on Wednesday. This rise could pose challenges to efforts to boost economic activity.

While Vietnam, a Southeast Asian industrial powerhouse, reported strong export and industrial output growth in May, rising inflation is a growing concern for authorities. Consumer prices had risen 4.4 per cent in April (year-on-year) and 3.25 per cent in 2023.

Vietnam aims for economic growth of 6.0-6.5 per cent in 2024, exceeding last year’s 5.05 per cent expansion. The central bank is targeting credit growth of 15 per cent to support this goal, but banks have struggled to increase lending so far this year.

Other data released on Wednesday showed positive signs:

• Exports: Estimated to have grown 15.8 per cent year-on-year in May to $32.81 billion, led by electronics and smartphones.
• Imports: Grew an estimated 29.9 per cent annually to $33.81 billion, resulting in a trade deficit of $1 billion for May.
• Smartphone Shipments: Estimated to have surged 50.6 per cent year-on-year to $4.4 billion in May.
• Electronics Exports: Up 31.5 per cent year-on-year to $5.9 billion in May.
• Industrial Output: Increased by 8.9 per cent annually in May.
• Retail Sales: Up 9.5 per cent year-on-year in May.

While these figures are positive, Oxford Economics predicts the central bank will keep its discount rate at three per cent for the rest of 2024.

They caution that the Vietnamese dong’s depreciation against the US dollar could prompt the central bank to raise interest rates to stabilise the currency, potentially impacting economic growth.