Recent CPI readings and near-term inflation risks

Recent CPI Readings and Near-Term Inflation Risks: An Updated Analysis

Vietnam’s disinflationary momentum in early 2026 continues to reinforce its resilient economic landscape, supported by domestic policy measures and robust industrial activity. However, recent global monetary developments, volatile markets, and diverging regional policies have introduced new layers of complexity, posing potential risks that could challenge the country’s inflation outlook in the months ahead.

Current Status: Sustained Disinflation Amid Strong Domestic Foundations

Vietnam’s inflation rate remains subdued at approximately 2.53% YoY in January 2026, reflecting a persistent disinflation trend that has characterized much of 2025. This ongoing moderation is largely attributed to accommodative monetary easing policies enacted last year, which facilitated credit expansion and supported industrial growth.

Industrial production remains a critical pillar, surging by 21.5% YoY in January, signaling sustained demand and high capacity utilization. Supply chain improvements and capacity expansion continue to stabilize prices, underpinning the disinflation trend.

A notable factor anchoring inflation expectations is soft food prices, particularly coffee, which declined by 5.45% due to Brazil’s record Arabica harvest. Such external commodity price declines help buffer external shocks and support price stability.

External Risks Escalate: Commodities, Geopolitical Tensions, and Global Monetary Divergence

Despite domestic strengths, external vulnerabilities are increasingly prominent:

• Commodity markets remain tense, with oil and natural gas prices elevated amid geopolitical tensions in Eastern Europe and the Middle East. Disruptions in supply chains threaten to reintroduce inflationary pressures through cost-push dynamics, especially if tensions escalate.

• Regional demand outlooks are subdued. China’s weak CPI growth and its cautious monetary stance—keeping benchmark lending rates unchanged for nine months—dampens Vietnam’s export prospects and overall external demand.

• Geopolitical uncertainties and logistical challenges continue to pose risks to raw material and energy supply chains, complicating inflation management.

Adding to external pressures, recent signals from leading global central banks have heightened uncertainty:

• The US Federal Reserve suggests interest rates are likely to remain steady for the near future. Vice Chair Michael Barr emphasized, "the Fed is likely to hold rates steady until inflation approaches the 2% target." Conversely, Fed Vice Chair Goolsbee indicated that "several more rate cuts are possible if inflation proves to be transitory," hinting at potential easing if inflation expectations decline. Notably, the New York Fed’s December inflation gauge rose to 2.8%, indicating persistent inflation pressures domestically and globally.

• The Bank of England has indicated a possible rate cut in March, though uncertainties persist. Governor Andrew Bailey noted that interest rate cuts remain an 'open question', reflecting caution amid volatile global conditions.

• The Bank of Korea announced it would hold interest rates steady at 2.50% throughout 2026, signaling a cautious approach amid global uncertainties and diverging regional monetary policies.

These diverging policies influence capital flows, exchange rates, and borrowing costs, with the US dollar (DXY) remaining near recent highs. External pressures have manifested in VND volatility; notably, on February 22, 2026, the black market VND weakened by 167 Dong overnight, exemplifying external stress on currency stability.

Market Movements and Strategic Reserve Diversification

Market indicators reveal external vulnerabilities and Vietnam’s strategic responses:

• Gold prices have surged past $5,100 per ounce, driven by geopolitical tensions and safe-haven demand. JP Morgan projects gold could reach $6,300 per ounce, underscoring its role as an inflation hedge.

• The domestic gold market experienced a sharp rise, with gold hitting around 185 million VND per lượng (~$8,000+ per ounce). This surge aligns with reserve diversification efforts, including large gold purchases and preparations for the upcoming national gold exchange scheduled for late February 2026. The government’s initiative to launch a gold exchange aims to enhance liquidity, transparency, and resilience, reinforcing Vietnam’s reserve management strategy.

• Foreign exchange markets exhibit increased volatility, with US dollar strength and VND fluctuations—such as the recent overnight weakening—highlighting the need for prudent FX policy adjustments to prevent imported inflation and maintain external stability.

• The bond markets also reflect investor concerns about external shocks, resulting in market volatility and cautious positioning.

Diverging Regional Monetary Policies and Their Impact

Recent developments across Southeast Asia and beyond add further complexity:

• Bank of America reports diverging monetary cycles across ASEAN nations, reshaping bank credit growth and margins. For example, Thailand’s central bank unexpectedly cut interest rates, signaling a move toward easing amid trade uncertainties and tariffs tensions.

• Indonesia and the Philippines maintain cautious stances, emphasizing macroprudential measures to prevent overheating.

• The Bank of Korea’s steady policy stance underscores regional divergence, influencing capital flow patterns and investment strategies across the region.

Such contrasting policies impact regional capital flows and exchange rate dynamics, requiring Vietnam to calibrate its own policies carefully.

Recent Developments in Global Monetary Policy and Market Liquidity

Adding new layers to the external landscape are recent analyses of global central bank liquidity and asset allocation strategies:

• A recent YouTube analysis titled “The $13 Trillion Shift: Why Central Banks are Moving Cash Now” highlights a significant global reallocation of reserves, with central banks increasingly diversifying assets into gold, cryptocurrencies, and other alternative assets. This shift underscores heightened global liquidity concerns and precautionary reserve strategies.

• Federal Reserve’s recent commentary, notably from Schmid, underscores ongoing concerns about inflation persistence. Schmid emphasized that “inflation remains above target, and the Fed remains vigilant,” reinforcing that monetary policy normalization will proceed cautiously, with an emphasis on inflation expectations and market stability.

Policy Responses and Forward-Looking Strategies

Vietnam’s policymakers remain agile in navigating external and internal challenges:

• Credit growth is carefully managed, with caps around 15% to support demand without overheating.

• Foreign exchange policies involve cautious adjustments to reference rates and interventions to mitigate excessive volatility.

• The government is accelerating reserve diversification, notably through gold purchases and the launch of a digital trading platform for gold, cryptocurrencies, and real estate, aimed at enhancing transparency and liquidity.

• The recent implementation of a 0.1% tax on crypto transactions seeks to regulate digital assets, curb speculation, and generate fiscal revenue, balancing financial innovation with investor protection.

Recent Policy Adjustment: The March 2026 Rate Decision

In a significant move, the State Bank of Vietnam announced in March 2026 that the monetary policy rate will remain unchanged at 4.0%. This decision reflects a cautious stance, emphasizing stability amidst external uncertainties and ongoing disinflation. The central bank highlighted its focus on supporting economic growth while guarding against imported inflation and currency volatility.

Near-Term Inflation and Growth Outlook

While Vietnam’s disinflation trend appears resilient, external factors—such as rising commodity prices, FX volatility, and global inflation signals—pose ongoing risks. The geopolitical tensions and regional monetary divergence could trigger supply shocks or imported inflation if not carefully managed.

Vietnam’s resilience will depend on continued reserve diversification, policy flexibility, and market stability measures. The strategic focus on gold reserves and digital assets indicates a deliberate effort to enhance external resilience.

Final Remarks

In sum, Vietnam’s disinflation trajectory remains firmly on track in the near term, supported by domestic strength and policy measures. However, external shocks—ranging from commodity price fluctuations to geopolitical tensions and divergent regional monetary policies—necessitate ongoing vigilance.

• Reserve diversification efforts, including gold accumulation and the launch of digital trading platforms, are pivotal tools for managing external risks.

• Prudent FX management and market stability initiatives will be crucial to prevent imported inflation and preserve external competitiveness.

• The diverging regional monetary policies, exemplified by Thailand’s easing and Korea’s steady stance, underscore the importance of adaptive, well-calibrated policies for Vietnam.

In conclusion, Vietnam’s disinflation trend is poised to persist through 2026, but external uncertainties require proactive, flexible strategies. The country’s focus on reserve diversification, market stability, and financial innovation positions it well to navigate external shocks, sustain low inflation, and support steady growth into the medium term.