Reviewing a decade of successful low inflation control, Dr. Nguyen Duc Do, Deputy Director of the Institute of Economics and Finance (Academy of Finance), recently shared that during the period of 2015-2024, average inflation was only 2.8%/year, much lower than the average of 10.2%/year in the previous decade (2005-2014).
THREE CRITICAL FACTORS
In the 2015-2024 period, inflation fluctuated around the 3% threshold, except for the years 2015 and 2021, which were significantly lower. In 2015, inflation reached a record low of 0.6%, far below the 5% target, mainly due to a sharp drop in oil prices. In 2021, it was only 1.8% due to the impact of the Covid-19 pandemic.
According to Dr. Do, there were three main reasons for the low inflation over the past decade:
First, the growth rate of money supply during 2014-2023 (with a one-year lag) was only 13.8%, much lower than the average of 27.1% in the 2004-2013 period.
Second, interest rates during 2014-2024 were maintained at positive levels, averaging 3.7%/year for 12-month term deposits. In contrast, the average real interest rate during 2004-2014 was 0%/year.
“With stable and reasonable monetary and exchange rate policies, Vietnam has managed to keep inflation below 4% in the past decade. In 2025, inflation is likely to be controlled at an average of 3% (+/- 0.5%), significantly lower than the 4-4.5% target approved by the National Assembly.”
Third, the USD/VND exchange rate during 2014-2024 was also more stable compared to the 2004-2014 period. While the VND depreciation rate against the USD averaged 2.9%/year during 2004-2014, it decreased to 1.6%/year in the 2014-2024 period.
“Low money supply growth, positive real interest rates, and stable exchange rates are the fundamental factors that kept inflation in Vietnam stable and low in the past decade,” said Dr. Do. “These three factors explain 80% of the reason for the successful inflation control in the past ten years.”
In reality, inflation during the 2015-2024 period remained relatively flat, hovering around an average of 2.8%/year or 0.23%/month, anchored by stable monetary and exchange rate policies. Fluctuations in inflation, higher or lower than the average, were mainly due to changes in oil prices, raw material prices, and prices of healthcare and education services controlled by the state.
According to Dr. Do, in 2024, money supply was controlled at 9.42%, much lower than the average of the 2014-2023 period, which will be a factor in controlling inflation in 2025.
“However, in 2024, while real interest rates remained positive, they were lower than the average of the 2014-2024 period. At the same time, the appreciation rate of the USD was also higher than the average. These factors may put pressure on prices in the coming time,” Dr. Do noted.
UNCERTAINTIES IN 2025
The exchange rate in 2025 remains a challenging variable, as in 2022, the DXY index (measuring the strength of the US dollar against six other major currencies) peaked at 113 points. While the DXY is now much lower, the USD/VND exchange rate has surpassed its previous peak, and the high volatility in exchange rates has led to expectations of rising inflation, affecting monetary policy. Exchange rates and interest rates remain uncertain and will impact prices in Vietnam.
Apart from the monetary and exchange rate factors mentioned above, Dr. Do also pointed out that inflation in 2025 would depend on other factors such as global economic growth, oil prices, and raw material input prices. According to forecasts by international organizations, the global economy in 2025 is expected to grow steadily at 3.2%, similar to 2024, while oil prices and basic commodity input prices are projected to decrease slightly on average.
Additionally, some experts noted that in recent years, instead of targeting a fixed 4% inflation rate as before, the inflation control target has been adjusted to a range of 4-4.5%, implying that Vietnam accepts higher inflation for higher growth.
However, the relationship between inflation and growth is not always strong, and the Phillips curve theory may not hold, resulting in a situation where inflation rises while GDP growth remains stagnant.
Speaking to the Vietnam Economic Review, a representative of the Price Management Department (Ministry of Finance) stated that the impact of exchange rate and global price fluctuations would put pressure on the cost of imported raw materials and inputs for domestic production, potentially leading to increases in consumer goods prices. Moreover, the risk of global trade disputes, especially tariff disputes among major economies, could disrupt supply chains and increase production costs worldwide.
The representative from the Price Management Department highlighted that in 2025, price management and adjustment would face challenges and pressures from the market and the prices of essential goods and services. Particular attention should be given to fuel prices, with the unpredictable dynamics of global oil prices.
According to the Ministry of Industry and Trade’s forecast, in 2025, OPEC+ (the alliance of oil-producing and exporting countries within and outside the Organization of the Petroleum Exporting Countries – OPEC) will face challenges as increasing production may affect oil prices, especially with the rising output from non-OPEC countries like the US and other major oil-producing nations.
Regarding construction material prices, the cost of some construction materials with limited supply (such as sand and gravel) may increase slightly in the first months of the year as construction projects rush to completion. Additionally, accelerated disbursement of public investment capital will increase the demand for construction materials, while extraction of sand and gravel is unlikely to increase significantly, leading to possible price increases due to both demand pull and cost push factors.
Prices of food, beverages, clothing, household equipment, and appliances tend to rise during the end-of-year and holiday seasons. Furthermore, natural disasters and epidemics could impact food prices in certain localities, contributing to an increase in the CPI.
Concerning prices of goods and services managed by the state, the representative of the Price Management Department stated that adjustments in prices of state-managed services, aiming to reflect actual costs and inputs, would impact the CPI.
FACTORS MITIGATING INFLATIONARY PRESSURES
Apart from the factors exerting upward pressure on inflation, there are also several factors that could help ease the burden on the price level in 2025. The Price Management Department (Ministry of Finance) argued that the cooling of global inflation would reduce Vietnam’s import inflation pressure and positively impact expectations and psychological factors, supporting inflation control.
Additionally, Vietnam has an abundant supply of food and agricultural products, meeting domestic consumption and export demands. According to the Ministry of Agriculture and Rural Development’s forecast, in 2025, as India lifts its rice export ban and Indonesia (Vietnam’s second-largest rice export market) achieves self-sufficiency in rice, the reduced demand for rice imports will affect Vietnam’s rice export value.
Furthermore, tuition fees for the 2024-2025 academic year and subsequent years in public preschool and primary education remain unchanged, as stipulated in Decree No. 97/2023/ND-CP dated December 31, 2023. Therefore, they will not impact the CPI in 2025.
Some tax support policies will also continue, such as the reduction of environmental protection tax on gasoline and the early implementation of value-added tax reduction from the beginning of the year, which will contribute to lowering the cost structure of goods and services. The Ministry of Finance will proactively coordinate with relevant ministries and sectors to advise on price adjustments and implement synchronous solutions to address challenges in price management.
According to Assoc. Prof. Dr. Ngo Tri Long, an economic expert, this year’s variables, such as global energy price fluctuations, the world economic situation, and trade policies, could influence actual inflation. Close monitoring and timely policy adjustments are necessary to ensure the inflation control target for 2025.
To address these challenges, Mr. Long suggested that Vietnam should continue implementing stable macroeconomic policies, increase foreign exchange reserves, diversify export markets, and enhance domestic production capacity to minimize the impact of external factors.
The full content of this article was published in the Vietnam Economic Review, Issue 6-2025, released on February 10, 2025. Please find the original article at https://postenp.phaha.vn/tap-chi-kinh-te-viet-nam/detail/1247
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