World Bank: CPI inflation in Vietnam falls for the fourth consecutive month

Vietnam’s consumer price index (CPI) inflation maintained its downward trend for the fourth consecutive month, from 2.8% in April to 2.4% in May, according to the Vietnam Macro Monitoring report published by the World Bank on June 19.

Core inflation remained high, at 4.5% in May, compared with 4.6% in April.

According to the report, retail sales continued to grow at an annual rate of 11.5% in May, comparable to the growth rates of the previous two months. Sales of goods improved from 9.7% in April to 10.9% in May.

Meanwhile, sales of services fell from 19.2% in April to 7.6% in May. Although exports of goods increased by 4.3% between April and May, they were still 6% lower than a year ago due to weak foreign demand. Imports fell 18.4% in May, reflecting the continued slowdown in demand for foreign inputs, both from FDI and domestic companies. The continued contraction of imported inputs may indicate that producers expect weak export performance in the coming months.

FDI disbursements registered USD 1.8 billion in May, a slight improvement from April and comparable to the previous year. To support the economy, the State Bank of Vietnam (SBV) cut policy rates for the third time since March. The refinancing interest rate was reduced from 5.5% to 5% and the overnight loan facility from 6% to 5.5%. Credit growth continued to slow, from 9.2% in April to 9% in May, reflecting sluggish demand for credit.

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The monthly budget balance posted a large deficit of about USD 2 billion last month. Revenue collection continued to decline by 35.8%, reflecting base effects due to higher revenue from land and property sales. Meanwhile, public spending also increased by 27.8% year-on-year in May.

Core inflation remained high, at 4.5% in May, compared with 4.6% in April.

According to the World Bank, the persistent weakness of foreign demand and uncertainty are negatively affecting the economy, translating into a contraction of exports and imports and a slowdown in industrial production. While investment outlays (proxed by retail sales) remain robust and comparable to pre-pandemic levels, credit growth continues to slow, reflecting weak credit demand. If global financial conditions tighten further, foreign demand could weaken further. North Vietnam began experiencing blackouts at the end of May, which, if not resolved quickly, could affect the economy.

As inflation appears to be declining, the SBV eased monetary policies to support the economy. However, policymakers will need to closely monitor the divergence in monetary policy stance between Vietnam and other countries, as it is creating pressures on capital flows and the exchange rate. Accelerating the disbursement of public investment (including National Objective Programs) would support aggregate demand and economic growth in the short term. At the same time, prioritizing investments in digital and green technologies, infrastructure and human capital will help promote long-term sustainable development.

As manufacturing exports have slowed and employment in the manufacturing sector has been affected, it would be important to rapidly identify and support affected workers and families through the social protection system. Streamlining administrative procedures and removing regulatory hurdles will help promote business activities and investments necessary for economic growth, he added.

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