Vietnam’s Inflation Accelerates to Eight-Month High

By Jason Folkmanis

Dec. 24 (Bloomberg) -- Vietnamese inflation accelerated to the fastest pace since April as higher rice prices pushed up food costs while an accelerating economy fueled domestic demand.

Consumer prices rose 6.52 percent this month from a year earlier, according to figures released today by the General Statistics Office in Hanoi. That compares with November’s 4.35 percent inflation rate and is the fourth straight month of gains. Prices climbed 1.38 percent in December from November.

Vietnam’s central bank announced an interest-rate increase on Nov. 25, becoming the first in Asia to raise borrowing costs after a loan-subsidy program led to what Nomura Holdings Inc. described as an overheating economy. Growth accelerated to 5.8 percent in the third quarter, the fastest pace this year.

“It’s going up quickly, but we have to keep in mind that Vietnam can maintain fast growth even with inflation of as high as 8 or 9 percent,” said Ly Xuan Hai, chief executive of Ho Chi Minh City-based Asia Commercial Bank, Vietnam’s third-biggest listed bank.

The central bank’s latest rate increase took effect on Dec. 1, with the benchmark rising to 8 percent from 7 percent. The State Bank of Vietnam had cut the rate to 7 percent in February from as high as 14 percent in October 2008.

“It’s too soon to make a decision on interest rates,” Hai said in a telephone interview today. “We should wait for the January figures.”

‘Not Quelled’

The acceleration in inflation last month, from 2.99 percent in October, shows macroeconomic instability in Vietnam, Moody’s Investors Service said earlier this week.

“Inflationary expectations have not been quelled,” Moody’s said in a Dec. 21 statement.

Overall food prices rose 5.8 percent in December from a year earlier, compared with a 3.5 percent gain in November. Rice prices in Vietnam, the world’s fifth-biggest consumer of the grain, have increased “substantially” since early November, the U.S. Agriculture Department said in a Dec. 11 release.

Domestic demand has seen a “full recovery” in Vietnam, Goldman Sachs Group Inc. said this month, helping to drive economic growth that may reach 8.2 percent next year, according to the New York-based bank.

Prices in the category including construction materials rose 12.6 percent in December, compared with an 8.4 percent increase in November.

‘Burgeoning Real-Estate’

Vietnam has a “burgeoning real-estate sector,” said Don Lam, a director of London-listed property fund VinaLand Ltd., in a Dec. 21 stock-exchange release. Residential projects in the country have “witnessed strong demand and rising prices,” Lam said.

Inflation may reach 14.2 percent by the third quarter of 2010, Nomura said in a Dec. 16 report, predicting that the Vietnamese government will shift its focus to fighting price increases from boosting growth.

A weaker currency “is likely to add to inflationary pressures and increase the need for additional rate tightening,” said Sonal Varma, a Mumbai-based economist for Nomura, which expects the Vietnamese central bank’s benchmark interest rate to reach 11 percent by the fourth quarter of 2010.

To contact the reporter on this story: Jason Folkmanis in Ho Chi Minh City at folkmanis@bloomberg.net