Vietnam’s Consumer Price Index (CPI) in 2024: Navigating Inflation and Economic Growth
Vietnam’s Consumer Price Index (CPI) has demonstrated remarkable resilience, recording a moderate increase of 3.63% in 2024 compared to 2023. This marks the tenth consecutive year the nation has maintained inflation rates below 4%, a significant achievement in managing economic stability. However, experts warn that sustaining the CPI around 4.5% in the coming year will require exceptional leadership and adept management from various ministries and government agencies.
Understanding the Stability of Inflation
Dr. Nguyen Duc Do, Deputy Director at the Institute of Economics – Finance, sheds light on the factors that have contributed to Vietnam’s stable inflation over the past decade. He highlights that the country’s average annual inflation rate has been remarkably low at 2.8% from 2015 to 2024. This is a stark contrast to the 10.2% average from 2005 to 2014, indicating a significant turnaround in monetary policy and economic management.
Key Factors Behind Controlled Inflation
Dr. Do identifies three primary factors instrumental in maintaining low inflation rates:
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Controlled Money Supply Growth: The money supply growth rate between 2014 and 2023 stood at a mere 13.8%, significantly less than the 27.1% average from the previous decade. This tighter control has been crucial in preventing inflation from spiraling out of control.
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Positive Real Interest Rates: Throughout 2014 to 2024, interest rates have consistently remained positive in real terms, averaging 3.7% for 12-month deposits. This contrasts sharply with the previous decade, where real interest rates were effectively zero, helping bolster savings and investment.
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Stable Exchange Rates: The stability of the USD/VND exchange rate has been noteworthy. The VND’s depreciation rate against the USD averaged only 1.6% annually from 2014 to 2024, down from 2.9% in the earlier years. This stability has played a key role in mitigating inflationary pressures from external sources.
Dr. Do asserts that these three factors are responsible for around 80% of the successful inflation control over the last decade, providing a solid foundation for ongoing economic policies.
Looking Ahead: Inflation Pressures for 2025
As 2025 approaches, the landscape for inflation control becomes more complex. The carefully regulated growth rate of the money supply in 2024, set at 9.42%, is expected to be a cornerstone for managing inflation in the coming year. However, the USD/VND exchange rate remains unpredictable, influenced by shifts in the DXY Index, which peaked at 113 points in 2022 and has since shown increased volatility.
The global economic outlook plays a significant role in domestic inflation management. International experts predict a steady global growth rate of about 3.2% in 2025, similar to the previous year, with commodity prices, including oil, expected to slightly decline. This ongoing global context will be crucial in determining Vietnam’s inflation trajectory.
Shifting Inflation Control Strategies
Historically, Vietnam’s inflation control target was a fixed 4%, but that approach has evolved into a more flexible range of 4-4.5%. This shift indicates a willingness to accept slightly higher inflation rates to foster economic growth. However, the relationship between inflation and growth is complex. The Phillips curve suggests that inflation can rise independently of economic growth, potentially leading to a feedback loop of inflationary expectations that can become challenging to control.
Challenges in Price Management
According to representatives from Vietnam’s Ministry of Finance (MoF), there are numerous challenges in price management this year, particularly concerning the cost of imported raw materials. Fluctuations in exchange rates and global prices could drive up domestic consumer goods prices. The ongoing trade disputes among major economies may disrupt supply chains, leading to increased production costs.
Prices of essential goods and services are anticipated to face substantial pressure, particularly as fuel prices continue to fluctuate unexpectedly. OPEC’s production decisions and rising output from non-OPEC countries could further complicate the landscape for fuel costs.
Factors That Could Ease Inflationary Pressure
Despite the challenges, there are factors that might help alleviate inflation in 2025. A cooling global inflationary environment could relieve some of the import-driven inflation pressures. Vietnam’s strong agricultural sector, capable of meeting both domestic and export needs, is another promising element. For instance, forecasts indicate that India may lift its rice export ban, leading to shifts in export value dynamics for Vietnam.
Tuition fees for public education, governed by recent regulations, are expected to remain stable, reducing potential inflationary impacts. Furthermore, supportive tax measures, such as cuts in environmental taxes on fuel and early VAT reductions, can help mitigate price increases for goods and services.
The Importance of Vigilance and Adjustment
Economic experts like Associate Professor Ngo Tri Long emphasize the need for close monitoring of global energy prices, trade policies, and other external factors that could influence inflation rates. Strategies for maintaining macroeconomic stability, bolstering foreign exchange reserves, and strengthening domestic production capacity will be essential for navigating the complexities of inflation control in Vietnam.
As the country moves through 2025, the dialogue surrounding CPI management will remain fluid and multifaceted, requiring ongoing engagement and strategic adjustments to adapt to evolving economic conditions.