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Inflation eases in first seven months; trade deficit narrows   2009-07-25 - Bloomberg

A street vendor walks past shops selling different marriage offerings in downtown Hanoi. Inflation eased this month to a five-year low of 3.31 percent.  
Vietnam’s inflation eased in the first seven months of the year, with consumer prices rising 9.25 percent compared to the same period last year, official data showed Friday.


For July alone, inflation eased to a five-year low of 3.31 percent, down 0.52 percent from June, the General Statistics Office said. This month’s slowdown in inflation was the 11th consecutive decline.

Food and beverage prices dropped 0.05 percent from last month while prices of housing and construction materials saw a hike of 1.89 percent and transport and postal services increased 3.05 percent.

Nguyen Duc Thang from the General Statistics Office said recent price hikes in electricity, water and petroleum products have impacted prices of other items in the basket used for calculating the consumer price index.

Retail prices of the 92-octane gasoline, after five consecutive increments, have risen by 29 percent over early this year, raising production costs. Electricity prices have also increased by 8.92 percent on average since March 1.

“The second half of this year could see higher inflation, but it could be controlled at single-digits for the whole year,” Thang said.

Anticipated hikes in prices of some import items such as petroleum products, fertilizers and steels, and bigger cash in circulation, which goes together with the government stimulus package, may increase CPI in the remaining months, he said.

“With the current trend of price hikes, we should be very careful and vigilant when regulating prices, as the pressure of recent gasoline price hike may increase prices of other commodities and interest rates in the coming time,” said economist Le Dang Doanh.

“It is very difficult to keep inflation below 10 percent this year. We need to exert more to reach the target,” he said.

“Inflation will probably bottom in August at roughly 2 percent, as the fuel-price hike of last year drops out of the annual comparison,” wrote

Prakriti Sofat, an economist at HSBC in Singapore, in a note Friday. “The State Bank of Vietnam is now getting concerned about rapid credit growth.”

Trade deficit

Vietnam’s trade deficit shrank 78 percent in the seven months through July to $3.4 billion from $15.2 billion in the same period a year earlier, the General Statistics Office said.

The trade gap narrowed as imports fell 32 percent to $35.73 billion. Exports eased 13.4 percent year-onyear to $32.34 billion, the office said.

For July alone, the deficit was estimated at $1.25 billion. The country’s trade deficit hit a record of $17 billion in 2008.

Between January and July, exports were led by garment and textile shipments which decreased 1 percent to $5.02 billion. Crude oil fell 44.8 percent by value to $3.7 billion, even after rising 17.7 percent by volume. Footwear exports dropped 9.7 percent to $2.46 billion.

Seafood shipments declined 8.9 percent to $2.17 billion, while rice exports surged 4.4 percent by value to nearly $2 billion as climbing 46.3 percent in volume to nearly 4.3 million tons.

Doanh said with the current situation, it would be difficult for Vietnam to reach its target export growth of 3 percent this year.

In the seven-month period, imports were led by machinery and equipment purchases, which were down 19.3 percent to $6.23 billion. Petroleum-product imports plummeted 57 percent by value to $3.4 billion, while steel purchases from overseas fell 58.2 percent by value to $2.15 billion.

‘The problem’

The full-year trade deficit is unlikely to exceed $8 billion, Ho Chi Minh City-based fund manager Dragon Capital said this month.

“The problem is that a lot of the imports in Vietnam are not for consumption, they’re adding to its productive capacity,” said Matt Robinson, an economist at Moody’s in Sydney. “So whenever imports are that weak it points to weak future exports.”

The decline in exports this year has been due to lower prices, as volumes have increased, VinaCapital Investment Management Ltd. said last week. Reduced foreign investment as international companies cut back amid a global recession may also be hurting overseas sales.

“Domestic enterprises have seen their exports remain steady,” VinaCapital said in a research note. “Foreign-invested enterprises have seen exports drop.”

A “steep” decline in imports is easing pressure on the country’s balance of payments, Moody’s Investors Service said last week.

Vietnam’s trade deficit in recent years as a percentage of the economy “far exceeds” those of other Southeast Asian nations before the region’s 1997 financial crisis, suggesting the gap is a potential threat, according to a study for the Asia Pacific Economic Cooperation forum released this month.

Concern over Vietnam’s economic indicators increased last year as the trade deficit surged and inflation soared to 28.3 percent, the highest since at least 1992.

Dong concern

The narrowing of Vietnam’s trade deficit provides potential support for its currency.

Any re-widening of the trade deficit as the economy gathers steam would be a concern for the exchange rate of the dong, which is currently “fragile but stable,” according to HSBC Holdings Plc. The prospect of a wider gap may be quickening the depreciation of the currency, Dragon Capital said this month.

“Figures like this shouldn’t serve as a catalyst to trigger a run on the currency,” said Robinson. “We’re not at that threshold point. But the underlying issue and the specter of a run is a clear and present danger that Vietnam faces.”

The dong declined to a record low of VND17,862 against the US currency this week. Steelmakers this month asked the government for help in getting hold of the dollars they need to pay for imports, according to the Vietnam Steel Association.

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