25 Oct 2009

Vietnam’s inflation quickens for second month on food

Vendors sit behind their vegetable stalls at a Hanoi market
Vietnamese inflation accelerated for a second month, driven by higher food prices amid faster economic expansion

Prices climbed 2.99 percent in October from a year earlier after gaining 2.42 percent in September, the General Statistics Office said in Hanoi Friday. On a monthly basis, prices rose 0.37 percent in October from September. Vietnamese inflation reached a year-on-year rate of 28.3 percent in August 2008, the highest since at least 1992.
“The favorable base effect from last year is now fading away,” said Tai Hui, the Singapore-based head of Southeast Asian economic research at Standard Chartered Plc, who expects inflation to reach between 5.5 and 6 percent by year-end. “The month-on-month figure is actually quite encouraging, though. For Vietnam, 0.4 percent month-on-month is a low figure.”
Inflation has quickened from a seven-year low of 1.97 percent in August, stoked by loan growth that looks set to exceed 30 percent, a government target that had already been revised up from 25 percent. The Vietnamese economy is forecast to expand 6.5 percent in 2010, up from an estimated 5.2 percent this year, Prime Minister Nguyen Tan Dung told the National Assembly this week.
“Rising inflation is one potential stumbling block for the economy,” Vinacapital Investment Management Ltd. said last week. “Several multilateral institutions, including the Asian Development Bank, have expressed caution over rising inflation risks.”
Government focus
Inflation may be gaining steam in part because of what Vinacapital described last month as a greater government focus on maintaining growth than on containing price gains.
Vietnam’s government believes “all efforts” should be made to ease the country’s economic slowdown, including the promotion of exports and the stimulation of investment through “expanded fiscal and flexible monetary policies,” central bank Governor Nguyen Van Giau said this month. The government is also committed to “actively preventing the recurrence of inflation,” Giau said.
The International Monetary Fund said this month that a greater focus on inflation in Vietnam is appropriate, citing indications of strength in the economy.
“Moderate price pressures continue to build,” said Paul Gruenwald, the Singapore-based chief Asia economist for Australia & New Zealand Banking Group Ltd.
Inflation triggers
Overall food prices rose 2.54 percent in October from a year earlier, up from a 1.79 percent gain in the previous month. On a monthly basis, food prices increased 0.32 percent in October from September.
Inflation is being triggered by “international food and energy commodity prices,” Robert Prior-Wandesforde, a senior economist at HSBC Holdings Plc in Singapore, wrote in a note this month that predicted Vietnam will have to raise interest rates by the most in Asia next year. “Food and energy together account for more than half of the country’s headline CPI basket.”
Vietnamese rice prices have advanced about 8 percent since last month, the U.S. Agriculture Department said last week.
“The increase is a largely a result of anticipation of a large sale to the Philippines later this year and recent government price stabilization purchases,” the department said.
Prices in the category including transportation fell 4.56 percent in October from a year earlier, compared with a 6.18 percent decline in September. On a monthly basis, prices in the category climbed 0.77 percent.
“Inflation may potentially go back to a higher level, fueled by credit growth and by the recovery of import prices as the global economy recovers,” Indochina Capital Vietnam Holdings Ltd. said this month.

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