Vietnam Inflation Accelerates to Fastest Since May

Vietnam’s inflation accelerated to the highest level since May, driven by faster-than-targeted credit expansion, quicker economic growth and higher oil prices.

Consumer prices increased 4.35 percent in November from a year earlier after gaining 2.99 percent in October, according to figures from the General Statistics Office in Hanoi. On a monthly basis, prices rose 0.55 percent in November from October. Inflation may accelerate to 6 percent by the end of the year, Deputy Prime Minister Nguyen Sinh Hung said last week. Credit growth in the 10 months through October reached 33 percent, exceeding the government’s 30 percent full-year target. Higher commodity prices and “healthy” wage growth, according to Capital Economics Ltd., are also driving inflation. “There are risks of inflation picking up,” Hung said in a Nov. 18 interview in Hanoi. “Since we wanted to boost economic growth, we injected a large volume of funds to businesses.”

The government also expects inflation of about 6 percent in 2010, Hung said, calling it an “acceptable and reasonable” increase given Vietnam’s economic growth.

The government’s stimulus package has quickened economic growth. The economy expanded 5.8 percent last quarter, up from 4.5 percent in the second and 3.1 percent in the January to March period.

Food, Commodity Prices

HSBC Holdings Plc predicts inflation will reach at least 10 percent by the second quarter.

“With international food and oil commodity prices rising and domestic demand picking up, the risks to this are very much on the upside,” said Robert Prior-Wandesforde, an economist at HSBC in Singapore.

Overall food prices gained 3.5 percent, up from a 2.5 percent pace in October.

Vietnam will probably begin increasing interest rates by January, with the tightening to come likely to be “the most aggressive in Asia,” wrote Kevin Grice, an economist at Capital Economics in London, which forecasts that GDP may expand by as much as 7 percent in the fourth quarter.

“Vietnam faces a number of challenges, the first of which is to ensure that its economy does not overheat,” he wrote in a Nov. 23 note which predicted that the central bank’s base rate would reach 12 percent by the end of 2010, up from 7 percent now.

(Bloomberg)

Tags: Vietnam business news, Vietnam finance news