Inflation and Trade Deficit: Challenging Growth Outlook

Many consumer products see price hikes due to fuel price fluctuations

Inflation and trade deficit pressures

According to data from the National Statistics Office under the Ministry of Finance, the consumer price index (CPI) in April 2026 rose 5.46% year over year, bringing the average increase for the first four months to 3.99%. This is a sensitive threshold, as the Government’s target of keeping full-year inflation below 4% is facing direct pressure from rising input costs.

Price increases were seen across most sectors of the economy, with 10 out of 11 main groups of consumer goods and services recording higher prices. Housing and construction materials saw one of the largest increases at 6.25%, contributing 1.42 percentage points to overall CPI. This trend was closely linked to developments in the energy market, with domestic gas prices rising 35.3% in line with global fuel prices, kerosene prices up 26.95%, and household electricity prices up 5.53%. Meanwhile, dining services rose 1.94%, reflecting continued pressure from labor, rental, and operating costs.

On the trade front, the trade balance recorded a deficit of US$3.28 billion in April, bringing the total trade deficit for the first four months to US$7.11 billion. However, experts view this as a “positive paradox.” Total imports in the first four months reached about US$175.6 billion, with production materials accounting for 94.2% of imports, showing that most imported goods were machinery, equipment, and raw materials serving as key inputs for production and exports in the coming quarters. The trade deficit accounted for only a small share of the total trade turnover of more than US$344 billion and remained within a safe range.

Another area drawing attention is the manufacturing sector. According to S&P Global, Vietnam’s Manufacturing Purchasing Managers’ Index (PMI) fell to 50.5 points in April, the lowest level in seven months. The strongest inflationary pressure in 15 years pushed input costs and output prices to their fastest increase since April 2011, forcing many businesses to cut their workforce for a second straight month.

According to Andrew Harker, Economics Director at S&P Global Market Intelligence, rising prices and supply chain disruptions linked to the conflict in the Middle East continued to weigh on the growth of Vietnam’s manufacturing sector in April. Rising fuel, oil, and transportation costs weakened both supply and demand across the economy. Although output continued to expand during the latest survey period, the pace of growth slowed significantly.

Even so, entrepreneurial activity and market confidence remain bright spots. In the first four months of the year, Vietnam recorded 119,400 newly established and resumed businesses, up 32.8% year over year from 2025. In April alone, average registered capital per enterprise reached VND12.1 billion (about US$484,000), up 37.9%. Total additional registered capital added to the economy during the first four months reached nearly VND1.9 quadrillion (about US$76 billion), showing that expectations for recovery remain intact.

Flexible policies needed to support businesses

As policymakers work to balance inflation control with growth, many experts believe flexible policies and business support measures should be prioritized. Nguyen Ba Hung, Chief Economist of the Asian Development Bank in Vietnam, said energy price fluctuations are a cost-push factor that directly affects supply and demand across the economy. One immediate solution is price support measures to ease pressure from rising costs. Government support measures implemented within available budget resources are considered an appropriate approach to help stabilize the market and maintain production and business activity, particularly in the domestic sector.

Current data also show a clear gap between economic sectors. While the domestic sector recorded a trade deficit of US$15.61 billion, the foreign direct investment sector maintained a trade surplus of US$8.5 billion. This has increased pressure to strengthen the capabilities of domestic businesses, particularly their ability to participate more deeply in FDI supply chains. Becoming Tier-1 suppliers is considered the fastest way to reduce dependence on external supply sources.

From a trade perspective, the large trade deficit with China at US$46.4 billion remains an issue to watch as global supply chains continue to shift. Meanwhile, Vietnam’s large trade surplus with the United States at US$46.9 billion shows that dependence on several key markets remains high. Diversifying both import and export markets has therefore become an urgent requirement for improving the economy’s self-reliance.

Vietnam’s economy in early 2026 has clearly been affected by unpredictable geopolitical developments and rising costs. However, internal growth drivers are continuing to build through investment inflows and strong growth in the business sector. Inflation at 3.99% and a trade deficit of more than US$7 billion are warning signs, but they remain under control. If external pressures, particularly geopolitical conflicts, ease in the near future and businesses effectively use imported production materials, the trade balance could reverse in the coming quarters.