Vietnam’s economic rebound challenged by rising headline inflation: WB
Although Vietnam’s economy showed signs of recovery in the third quarter of this year, particularly in industrial production and exports, a significant increase in headline inflation has emerged as a cause for concern, prompting scrutiny from policymakers.
Headline inflation, measured by the consumer price index (CPI), surged to 3.7% year-on-year in September 2023, up from 3% in August, according to a report on Vietnam’s macroeconomic development released by the World Bank (WB) on October 17.
This sharp upward trend began in June and is primarily attributed to rising costs in several key sectors. Food and housing materials led the increase, followed by transportation services, which contributed 0.3 percentage points to the CPI due to a new round of oil price hikes between July and September.
The price of education services climbed 7.6% year-on-year in September.
In contrast to the headline figures, core inflation, which excludes volatile items like food and fuel, softened to 3.8% year-on-year in September from 4.0% in August. This indicates that the spike in headline inflation is largely driven by sector-specific factors rather than broad-based price pressures.
The sharp uptick in headline inflation requires immediate attention from policymakers, as it could undermine the economic recovery and erode consumer purchasing power, the report noted.
The rising inflation comes at a time when Vietnam’s economy is showing signs of recovery. The country’s GDP grew by 5.3% year-on-year in the third quarter of 2023, with the industrial sector contributing significantly to this growth.
However, credit growth has slowed, falling to 8.7% year-on-year in September from 9.4% in August, signaling a slump in consumer and investment activities, especially in real estate.
Amid these challenges, Vietnam’s state budget deficit widened to US$5.9 billion in the third quarter from US$4.6 billion in the previous three months. Public investment increased by 45.3% compared to the same period last year but reached only 48% of the planned budget for 2023, highlighting the Government’s effort to stimulate the economy effectively.
Meanwhile, the softening core inflation suggests that targeted interventions in affected sectors might be more effective than broad monetary measures. As the economy continues to recover, Vietnam will need to balance its growth objectives with the imperative to keep inflation in check, making this a key issue to watch in the coming months.
