[HO CHI MINH CITY] Vietnam’s consumer price index (CPI) rose 4.4 per cent year on year (yoy) to a 15-month high in April, data released by the government’s statistics body on Monday (Apr 29) showed.

This is faster than the 4 per cent recorded in March and also at the highest April pace since 2014, led by rising costs of food, transport, housing and healthcare services.

The index inched up 0.07 per cent from March’s level, following a 0.23 per cent decline in the preceding month. 

For January till April, average consumer prices were up 3.93 per cent from the year-ago period, the highest level since 2020. This is close to the country’s full-year target inflation of 4 to 4.5 per cent. 

Core inflation – which strips out volatile items – accelerated to 2.79 per cent yoy in April, bringing the average figure in the first four months to 2.81 per cent. 

In Vietnam, food and drink services are the most important categories in the country’s CPI, making up 36.12 per cent of the total weight. In April, food prices picked up the most in eight months, largely due to elevated rice prices. 

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Adam Ahmad Samdin, assistant economist at Oxford Economics, noted that rice prices remain notably higher than in the same period last year due to the El Nino effect and India’s rice export ban.

He added that price pressures from rice are expected to moderate in the second half of 2024 due to more favourable base effects.

Retail sales remained resilient from March’s three-month high of 9.2 per cent, expanding by 9 per cent in April from the year-ago period and fuelled by an improvement in the tourism sector.

Another challenge to the country’s inflation prospect comes from the depreciation of the dong, BIDV Securities Company analysts told investors in a note earlier this month. 

The dong is under pressure from various sources, including the strength of the US dollar amid a higher-for-longer interest rate environment, the disparity between the dong and US dollar interest rates, as well as speculative activities in the bullish gold market.

Domestic gold prices increased by around 12 per cent year to date, with a premium of around 11 million dong (S$590) per tael over the international rate, which already gained roughly 14 per cent this year.

The country’s currency also fell against the greenback by roughly 4.5 per cent since the start of the year and around 8 per cent from a year ago, according to prices from banks compiled by Bloomberg.

“The State Bank of Vietnam (SBV) intends to keep credit conditions accommodative in order to support growth, and this accommodative stance could continue to weigh on the VND,” Fiona Lim, a senior FX strategist at Maybank, told The Business Times last week. 

“As long as the USD and US rates continue to climb, USD/VND may continue to creep higher.”

With the economy recovering and inflation remaining within target, most analysts believe that the country’s central bank will hold policy rates for the rest of the year. 

SBV could also buy time via its ongoing interventions, including liquidity controls and US dollar sales, until a broader turn in the US dollar, expected in the second half of 2024 following the current hawkish repricing.

Trade-fuelled recovery

Vietnam’s trade turnover maintained its upbeat double-digit growth in April. Preliminary estimates showed that Vietnam’s exports this month grew by 10.6 per cent from a year ago to US$30.9 billion. 

Imports also rose 19.9 per cent yoy to US$30.3 billion. This has resulted in a trade surplus of around US$8.4 billion in the first four months.

The computers and electronics sector continued to be a bright spot, with exports expanding by about 32.6 per cent yoy this month to US$5.3 billion. 

Industrial production jumped 6.3 per cent in April from 4.1 per cent in March, led by manufacturing (7 per cent) and electricity and gas (11.3 per cent). 

Production of electrical equipment and computer, electronic and optical products drove the growth, with significant increases of 24.3 per cent and 10.3 per cent, respectively.  

“Vietnam continues to benefit from the gradual recovery in the global tech cycle, and we expect this trend to continue throughout the rest of 2024,” noted Samdin.

“Despite the positive data, the subdued external environment is likely to continue weighing on Vietnam’s trade-oriented economy,” he added. 

Oxford Economics believes Vietnam’s gross domestic product growth will miss its growth target this year. After a lower-than-expected expansion of 5.05 per cent last year, Vietnam’s legislature aims for a full-year GDP growth of 6 to 6.5 per cent for 2024.

Last week, the World Bank forecast Vietnam’s GDP growth for this year at 5.5 per cent, while Standard Chartered also adjusted its prediction to 6 per cent from 6.7 per cent, on lower-than-expected Q1 growth and global trade headwinds.

Disbursed foreign investments stayed strong, hitting US$6.3 billion from the start of the year to Apr 20, up 7.4 per cent from a year ago.

However, while foreign investment pledges grew 4.5 per cent yoy to US$9.27 billion, the pace was cut significantly from the 13.4 per cent growth recorded until Mar 20.

The ongoing resignations of top officials in the country, including the latest departure of the National Assembly head, have raised worries about the political instability in Vietnam.

“Admittedly, recent events have temporarily slowed policy implementation and affected confidence levels,” Dragon Capital told investors in a note on Apr 26.

However, the fund manager viewed the current leadership changes as posing a risk of delaying the Vietnam investment case rather than derailing it, with little impact on the country’s commitment to reform and policies to support economic growth.