Vietnam faces inflation pressures as oil prices surge

Vietnam faces inflation pressures as oil prices surge

Amid the recent surge in oil prices, RMIT Economics lecturers highlighted Vietnam’s inflation outlook and recommended strategies to mitigate the negative impacts.

How global oil price swings influence inflation in Vietnam  

The recent surge in global oil prices, briefly pushing past US$80 per barrel, was largely driven by escalating geopolitical tensions in the Middle East and mounting fears of a potential blockade of the Strait of Hormuz, a strategic chokepoint through which more than 20 per cent of the world's oil supply transits. Although de-escalation signals from Iran have brought prices down to US$65-70, the earlier shock has impacted economies worldwide, including Vietnam. 

In June 2025, Vietnam's consumer price index (CPI) rose 0.48 per cent compared to the previous month and 3.57 per cent year-on-year. This upward movement, while still within the 4.5-5 per cent inflation target set by Resolution 192/2025/QH15, signals persistent cost-push inflationary pressures. Chief among these is the elevated cost of energy, particularly imported fuels, which play a foundational role across Vietnam's supply chains. 

Dr Vu Thi Hong Nhung, Lecturer in The Business School at RMIT Vietnam, says: “Vietnam's exposure to oil price shocks is neither new nor superficial. 

“While the country does export some crude oil, its limited refining capacity and modest domestic reserves mean it remains heavily reliant on imports of refined petroleum products.”  

The economy’s dependence on oil makes it highly sensitive to global price swings. 

“When global oil prices rise, domestic fuel costs are quickly affected, feeding through transportation, logistics, production, and consumer prices more broadly,” says Dr Nhung. 

She highlights this sensitivity with clear examples. Roughly 9.67 per cent of the Vietnamese CPI basket comprises fuel and transportation services. Food and catering services, which account for approximately 33.56 per cent of the basket, are also highly energy-intensive, making their prices particularly responsive to shifts in fuel costs. Gasoline and diesel are commonly used fuels in the domestic transportation system and are also widely used in sectors such as rice milling, fishing vessels, and irrigation systems. Logistics costs represent 10 to 15 per cent of production costs in many industries, and fertiliser prices are closely tied to global oil and gas trends. These are not abstract linkages but real, measurable, and historically proven. 

Vietnam’s economy reacts strongly to oil price changes. (Image: Pexels) Vietnam’s economy reacts strongly to oil price changes. (Image: Pexels)

In 2008, when global oil prices reached a record high of US$147 per barrel, Vietnam’s inflation rate for the first eight months rose by 21.65 per cent compared to the same period the previous year, the highest level in over a decade, mainly due to sharp increases in fuel and food prices, combined with the gradual removal of fuel subsidies. In 2011, the Arab Spring pushed oil prices up to US$120 per barrel, and by April 2011, Vietnam’s inflation rate had climbed to 17.51 per cent year-on-year. More recently, in early 2022, oil prices once again approached US$120 per barrel in March due to the Russia-Ukraine conflict. As a result, Vietnam’s inflation rate rose by 2.41 per cent year-on-year in March 2022 and continued to rise, reaching 3.37 per cent year-on-year by June 2022.

These past episodes are instructive for understanding current risks. Although oil prices have eased from recent peaks, energy and logistics costs remain high. Dr Nhung points out: “Geopolitical tensions could flare up again at any moment, sending oil prices back up and reigniting inflation.”  

She notes that without stronger policy buffers, the economy remains exposed to abrupt shocks. 

“These price movements impact consumer purchasing power, particularly among lower-income groups, and constrain the State Bank of Vietnam's monetary policy space.” 

Policy responses to mitigate the impact of rising oil prices on Vietnam’s economy

To cushion these impacts, Dr Phan Thanh Chung, Lecturer in Economics at RMIT Vietnam, emphasises that Vietnam needs a two-pronged policy approach: short-term measures for immediate relief and long-term reforms for energy resilience. 

Dr Vu Thi Hong Nhung (left) and Dr Phan Thanh Chung (right), RMIT Vietnam Dr Vu Thi Hong Nhung (left) and Dr Phan Thanh Chung (right), RMIT Vietnam

Dr Chung says: “In the short term, the government can provide targeted support to vulnerable groups and key sectors.”

Temporarily reducing environmental taxes and import duties on fuel can help ease retail prices, while bolstering the petroleum price stabilisation fund would allow authorities to smooth out sudden price hikes. Direct assistance, such as cash transfers or fuel vouchers, should be directed to low-income households, farmers, and transport workers who are disproportionately affected. Similarly, offering tax breaks to fuel-intensive sectors like logistics and fisheries could help offset rising input costs.

“To avoid placing further financial pressure on businesses during volatile times, the government should also consider delaying the implementation of new tax policies or regulatory fees across the wider business community,” says Dr Chung. He explains that this would provide firms with breathing space to adapt and manage rising operational expenses without the added burden of policy changes.

On the monetary side, the State Bank of Vietnam should maintain a cautious stance, balancing inflation control with the need to sustain growth. Ensuring access to affordable credit for small businesses grappling with energy costs is crucial. Meanwhile, temporary price controls on essential goods and services, such as public transport and basic food items, could help contain second-round inflationary effects.

Dr Chung says that in the long run, structural reforms are vital. 

“Diversifying energy sources by accelerating the adoption of renewables such as solar, wind, and biomass, will reduce Vietnam’s dependence on imported oil.”

Improving energy efficiency and promoting electric vehicles can also help mitigate demand-side pressures. Expanding domestic oil exploration and building strategic petroleum reserves would strengthen energy security. 

“Finally, investing in public transport systems and urban infrastructure can reduce long-term fuel consumption,” Dr Chung concluded.

Story: June Pham

23 July 2025

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