Headline inflation in June further moderated to 2.2% y-o-y, from 2.9% in May. This marks not only the lowest y-o-y inflation growth since 2019, but the slowest pace in more than three years.

Inflation in Vietnam to Remain Subdued
On a sequential basis, prices fell 0.1% m-o-m, reversing the incremental increases over the past two consecutive months. The main drag came from lower transport prices, falling 1.7% m-o-m, primarily due to declining global oil prices. 
Meanwhile, housing and construction materials prices fell 0.2% m-o-m and food costs remained steady at 0.1% m-o-m. In addition, healthcare prices were unchanged over the past half a year (barring a minimal decline in May).
Typically the government adjusts healthcare costs every six months, which means that an upward adjustment to healthcare costs could happen in July or August. In addition, given how well inflation has been contained, there could be more room for the government to continue its healthcare reform.
Overall, Vietnam’s inflation has remained subdued with inflation growing at 2.6% y-o-y on average in 1H19. Although higher global food prices stemming from El Nino and recent retail electricity price hikes could pose upside risks, they are unlikely to pose imminent threats to the SBV’s inflation target of “below 4%” for the year. HSBC expects inflation to moderate to 2.7% in 2019, from 3.5% in 2018. Given benign inflationary pressures and solid economic growth, HSBC believes the SBV will keep monetary policy on hold in 2019.
As a highly exposed economy, Vietnam is not immune to global trade tensions. But looking ahead, HSBC still has some reasons to remain optimistic. Manufacturing PMI accelerated to 52.5 in June, ending 2Q with a stronger reading than 1Q and reflecting ongoing optimism in Vietnam’s manufacturing sector. 
The June reading was primarily driven by higher new orders, expanding at the fastest pace since 2019. Panellists attributed the rise in new orders to the launch of new products and rising customer numbers, which also led to higher backlogs of work (Nikkei, IHS Markit). 
As such, the employment sub-index returned to expansionary territory, suggesting a positive hiring outlook. That said, HSBC also sees some negative impact of the lingering trade war, with new export orders expanding at a slower pace during 2Q.
Moreover, strong growth in Vietnamese exports to the US has caught the eye of US President Donald Trump, suggesting a risk that trade tensions may impact Vietnam more directly. Still, HSBC believes business confidence should hold up, and manufacturing production should stay strong – after all, FDI inflows remain strong.
Information in the article was taken from HSBC’s Vietnam at a glance’s report.