Rising energy prices to drive inflation: HSBC

"We are raising our 2022 average inflation forecast slightly ... but it should not pose a major risk to the State Bank of Vietnam, as it will likely remain well below the 4 percent inflation target," the bank said in a note.

The rise in global fuel prices, and reduced production by Vietnam’s largest refinery, Nghi Son, has resulted in fuel shortages in some southern localities in recent weeks.

The government on Friday increased gas prices by around 3.9 percent to VND25,320 per liter. In the last two months it has hiked the rate by 11 percent.

Energy inflation continued to gain momentum in January and rose 1.9 percent year-on-year, while food prices inflation is yet to pick up, HSBC said.

However, while rising inflation in parts of Southeast Asia (Thailand and Singapore) has gained attention, Vietnam’s inflation is unlikely to be a big concern this year, the lender said.

Since Vietnam continues to stick to its "living with the virus" policy, consumer sentiment is up, leading to a rebound in consumption, it said.

After a 4 percent fall in 2021, retail sales grew 1.3 percent year-on-year in January 2022, it said.

"Vietnam’s key growth engine is set to see a strong recovery, as the labour shortage continues to ease".

Most of the key sub-indicators continue to show a sustained recovery, offering optimism that manufacturing would likely return to its pre-Covid-19 levels, it added.

Inflation hit a six-year low of 1.84 percent last year, according to government data.

The Asian Development Bank has said inflation could reach 3.8 percent this year.