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Vietnam’s inflation advances for first time in a year   2009-09-25 - Bloomberg

Vietnamese inflation accelerated for the first time in more than a year as government stimulus spending drove a revival in economic growth.


Consumer prices in the Southeast Asian nation rose 2.4 percent in September from a year earlier after climbing 2 percent the previous month. That was the first acceleration since August 2008, according to figures from the General Statistics Office in Hanoi. Prices increased 0.6 percent in September from August.

“Looking at credit growth and the size of the fiscal deficit, we can expect inflation to start picking up from here,” said Jonathan Pincus, an economist with the Vietnam Program at the Harvard Kennedy School in Ho Chi Minh City. “This is the inevitable delayed response to bank credit and a bigger deficit.”

Vietnam’s government valued its fiscal stimulus package at 8.6 percent of gross domestic product, according to an Aug. 28 letter that central bank Governor Nguyen Van Giau sent to the Asian Development Bank. The Manila-based lender estimates that the government budget deficit may reach as much as 10.3 percent of GDP this year from 4.1 percent in 2008.

“Inflation pressures re-emerged in the second quarter, as commodity prices edged up and growth accelerated,” Bahodir Ganiev of the ADB’s Hanoi office said in a report this week. “The State Bank of Vietnam has started taking measures to keep inflation in check and to damp devaluation expectations.”

Growth focus

Inflationary pressures are rising in Vietnam, Citigroup Inc. said last week, citing a weakening currency and credit growth that is outpacing deposit growth.

An increase in the target for bank loan growth suggests that Vietnam’s government is focused more on maintaining economic growth than on easing inflation pressures, Vinacapital Investment Management Ltd. said this month.

Vietnam’s economic growth rate in the first half of the year was 3.9 percent, up from a 3.1 percent first-quarter pace that was the slowest on record, according to the Statistics Office. The government is targeting a 5.2 percent full-year expansion, followed by 6.5 percent in 2010, Deputy Prime Minister Hoang Trung Hai said on Sept. 11 in China.

Currency risk

The decision to focus on growth creates risk for the Vietnamese dong in 2010, Vinacapital said in its note this month. Australia & New Zealand Banking Group Ltd. predicted earlier this month that the dong would be devalued to about 18,500 per dollar by year-end, compared with 17,826 Thursday and 17,483 at the end of 2008.

“There’s probably already some pass-through from the weaker currency into inflation via imports,” Pincus said. “What happens next depends on the dong. If accelerating inflation doesn’t cause people to unload the dong, the State Bank may be able to leave interest rates unchanged for a while. If people sell the dong, they’ll have to boost rates sooner.”

The central bank has left its benchmark interest rate unchanged at 7 percent since February, after cutting it from 14 percent in October. Citigroup’s note last week predicted that rates may be raised as soon as this year, partly in response to accelerating inflation.

Education led the areas in Thursday’s report that recorded faster inflation in September, with prices in the category rising 6.2 percent year-on-year through September compared with 3.2 percent year-on-year through August.

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