Vietnam inflation accelerates to 3-year high; currency drops to 1-month low

The CPI inflation rose to 5.22% from a year earlier, its highest since January 2014, and sharply higher than 2016 December's 4.74%.

Vietnam furniture factory
A man working in a furniture factory in Vietnam Reuters

Vietnam's consumer price inflation accelerated to a 3-year high in January while industrial output slowed drastically as per data released on Thursday (2 Feb), and the currency dong fell to a 1-month low against the dollar amid a slew of mixed data.

The Vietnam dong weakened to 22,644/dollar, its weakest since 6 Jan, from the previosu close of 22,000.

The CPI inflation rose to 5.22% from a year earlier, its highest since January 2014, and sharply higher than December's 4.74%, driven mostly by the 5.02% rise transport prices, which had seen a 1.12% deflation in December. Beverages and tobacco prices rose 2.32%, up from 1.97% in the previous month.

There was a set of data releases from the South East Asian country on Thursday including the Nikkei manufacturing PMI, retail sales and industrial output, in addition to the inflation data.

Retail sales increased 9.9% year-on-year in January, up from 9.8% in December, mainly driven by a 30.7% acceleration in tourism sales.

The industrial production growth, however, dropped to a 4-year low of 0.7%, sharply below the December rate of 8.3%, dragged by the 13.9% slump in mining output and seasonal factors, according to the official statistics.

The PMI release by IHS Markit on Thursday showed that manufacturing conditions continued to expand in Vietnam, but the pace has slowed. The index decreased to 51.90 in January from 52.40 in December.

Vietnam is a developing economy in the region, and it has recently been rising as a leading agricultural exporter and an attractive foreign investment destination.

Manufacturing, information technology and high-tech industries are also helping Vietnam's growth now-a-days and it is also one of the largest oil producers in South East Asia.

The Vietnam economy has expanded 6.68% year-on-year in the fourth quarter of 2016, compared to the 6-year average of 6.19% until then.

Trade Scenario

The trade deficit of Vietnam narrowed to $100 million in January from $494 million in December, data showed Thursday.

Year-on-year, sales rose 7.6% to $14.6 billion, mainly driven by the 23.6% rise in electronic and computers sales, the 23.7% gain in machinery, appliances and a 10% rise in sales of phones and components.

Exports to the US made up to 9.5%, the EU countries 4.8%, China 38.6%, Japan 13.2% and the ASEAN countries 0.5%, as per the latest breakup.

Imports grew by 15.8% to $14.7 billion, with the 21.4% rise in purchases of machinery and equipment, the 13.8% jump in electronics and computers purchases and the 20.1 rise in gasoline purchases making major components.