VINACHEM

With rising living costs and weak consumption, Vietnam’s economy faces silent challenges.

Where has inflation gone amid a backdrop of expansive fiscal and monetary policies and unpredictable global price fluctuations?

A personal story, a shared reality

Last weekend, the wife of a longtime friend tearfully called me: “It’s unbearable. Everything’s getting more expensive, and he just sits there like nothing’s happening. He thinks the money he gives me is enough. I’m exhausted.”

I’ve known them for years, and I was aware they had been fighting for weeks. The husband, a civil servant, earns a little over 10 million VND per month, keeps a small portion for himself, and gives his wife 10 million VND. She is also a civil servant, earning 10 million VND. Both are hardworking, kind, and dedicated parents.

But realistically, supporting a family of four on a combined income of 20 million VND (about 785 USD) in Hanoi - Vietnam’s most expensive city - is tough. Electricity bills, groceries, and school fees eat up the entire salary. Forget about envelopes for weddings or funerals, or gifts for parents back in the countryside.

Costs are rising, but inflation isn’t

In reality, it’s not just daily expenses that are burdensome. In the first half of 2025, the prices of many construction materials like sand, gravel, stone, bricks, and fill skyrocketed, with some items doubling or tripling in price. This abnormal surge is putting immense pressure on investment costs and delaying countless projects for both the public and private sectors.

Things got so tense that in mid-June, Prime Minister Pham Minh Chinh issued a directive urging ministries and agencies to tighten controls and stabilize construction material prices.

According to the General Statistics Office, the price index for materials used in production rose 3.84% in the first half of the year compared to the same period last year. Materials for manufacturing rose 4.25%, for agriculture-forestry-fisheries by 1.78%, and for construction by 1.20%.

The housing, electricity, water, fuel, and construction materials group saw a 6.35% increase. Household electricity prices alone rose 5.51%, driven by rising demand and an average retail price adjustment by the Vietnam Electricity Group (EVN). Meanwhile, food and catering services rose 3.60%, and education costs increased 2.95%.

Yet inflation remains subdued

Despite all this, the consumer price index (CPI) for the first half of 2025 only rose by 3.27% compared to the same period in 2024.

In other words, CPI is trending in the opposite direction of lived experiences.

Notably, the 3.27% CPI increase in 2025 is not only lower than in 2024 (4.08%) but also below 2023’s level (3.29%). This suggests better inflation control in 2025, or at least a break from the previous upward momentum.

Moreover, core inflation averaged 3.16% in the first half of 2025, also counter to global trends.

The IMF recently forecasted global inflation to drop from 5.8% in 2024 to 4.2% in 2025. However, emerging and developing economies are still expected to face higher inflation, despite a projected decline from 7.9% to 5.9%.

The IMF also warned that trade tensions, geopolitical instability, and rising protectionism could hamper efforts to reduce inflation, especially in developing markets.

This means Vietnam’s CPI and inflation are not only low by domestic standards but also bucking global trends.

From every angle - consumption, production, investment - a stable CPI is welcome news.

Why is inflation still “lying low”?

Recent economic data shows that despite aggressive fiscal and monetary expansion aimed at boosting growth, inflation remains subdued - even as the world sees rising pressure.

As of June 30, total credit in the economy surpassed 17.2 million billion VND (around 675 billion USD), up 9.9% from the end of 2024. Banks pumped nearly 1.55 million billion VND (over 60 billion USD) into the market in the first half of the year alone - roughly 260 trillion VND (10.2 billion USD) monthly. Compared to the same period last year, credit grew by 19.32% - the highest since 2023.

In addition to monetary policy, fiscal policy has also loosened at an unprecedented scale. The budget deficit is projected to reach 4-4.5% of GDP this year, surpassing the 3.8% target. Public investment spending is estimated to hit nearly 1 million billion VND (about 39.3 billion USD), up 16.7% from the 791 trillion VND (31 billion USD) planned.

Furthermore, tax and fee exemptions, reductions, and deferrals for businesses and citizens exceed 230 trillion VND (over 9 billion USD). Budget revenue in the first half of the year reached about 66% of the target, with land use fees alone exceeding 96%.

Both major policy pillars have expanded massively, reflecting the government’s strong push to boost growth and meet its ambitious 8% GDP target for the year.

Yet inflation hasn’t risen. Why hasn’t this flood of money pushed CPI up?

The answer lies in consumer purchasing power. Personal consumption - the main driver of inflation - has not rebounded in proportion to the scale of the economic stimulus. This is a critical indicator of the deep-seated challenges burdening the economy.

Weakened demand is holding prices back

Walk down the once-bustling commercial streets of Hanoi or Ho Chi Minh City. Visit shopping malls that used to be packed or even local traditional markets. The decline in consumer demand is palpable.

It's not hard to spot the quiet storefronts, the half-empty supermarkets, and the slowed pace of daily trade. Consumer spending, which typically accounts for around 64% of GDP, is “clogged” in ways rarely seen. In just the first half of this year, 127,200 businesses shut down, raising the total number of closures since 2020 to over 862,000.

The reasons go beyond rising input costs, tight credit, or waning market confidence. Consumers are tightening their belts, leading to stagnant aggregate demand. Even electricity consumption - a proxy for both industrial production and household use - only rose 2.67% in the first half of 2025, the slowest growth rate in years.

Meanwhile, one standout fact: land-related budget revenues have surged. According to the Ministry of Finance, revenue from land has hit nearly 200 trillion VND (around 7.85 billion USD), nearly double the annual projection - an unprecedented leap. This shows that households and businesses have redirected massive funds toward land-related financial obligations, such as auctions, transfers, taxes, and fees - draining resources away from consumption and productive investment.

The average 3.27% CPI increase in the first half of 2025, lower than in 2023 and 2024, indicates minimal inflationary pressure from demand.

A low CPI is a double-edged sword. While it suggests inflation isn’t a problem, it also signals weakening consumer power.

According to the General Statistics Office, the average monthly income of workers is now 8.3 million VND (about 325 USD). My friend, by comparison, is still relatively fortunate. With a monthly income of 10 million VND (roughly 390 USD), he belongs to the top 20% of Vietnam’s income earners.  – Source: VNN