Tue, Aug 26, 2008 page11

• Fuel increases speed up Vietnamese inflation rate

  LOWERING COSTS The government said it had to cut subsidies to state-owned retailers last month to save money after crude oil had surged 20 percent this year

  • BLOOMBERG
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  Vietnam’s inflation quickened this month after the government increased fuel prices by a record amount to pass on rising oil costs.

  The consumer-price index (CPI) rose 1.6 percent from last month, when it gained 1.1 percent, the General Statistics Office said yesterday in Hanoi. Annual inflation accelerated to 28.3 percent, the fastest pace since at least 1992, from 27 percent last month.

  The government last month lifted the cost of the most commonly used grade of gasoline by almost a third, adding to investor concern that accelerating inflation in Vietnam, which already has Asia’s highest rate, would destabilize growth.

  “We all expected inflation to quicken after the government raised fuel prices, but it’s not as bad as we thought,” said Nguyen Manh, Hanoi-based director of treasury at Bank for Investment & Development of Vietnam (BIDV).

  BIDV, the second-biggest lender by assets, had expected consumer prices to gain at least 2 percent, Manh said.

  Prices in the category including transport led the index higher, rising 9.1 percent after gains of 0.6 percent last month. From a year earlier, transport costs were up 25.6 percent, compared with 15.3 percent last month.

  Vietnam needed to lower costs for the government by cutting fuel subsidies to state-owned retailers, Vietnamese Finance Minister Vu Van Ninh said after last month’s increase, the first since February.

  The increase was in response to a 20 percent surge in crude oil costs this year. Crude oil has dropped more than 21 percent after a record US$147.27 a barrel on July 11.

  Vietnam’s finance ministry on Aug. 14 lowered fuel costs by 5.3 percent to “reduce the cost of goods and ensure consumers’ benefit.”

  The CPI rose less than expected by the country’s three brokerages, indicating the government’s measures to rein in inflation are taking effect. Vietcombank Securities, Saigon Securities Inc and Bao Viet Securities had all expected an average monthly increase of more than 2 percent.

  The central bank has raised the benchmark interest rate three times this year to 14 percent, the highest in Asia, and has boosted reserve requirements for banks. The country also wants to keep credit growth below 30 percent and is reducing government spending by 10 percent this year.

  The benchmark VN Index yesterday gained 21.27, or 4 percent, to 548.25, the highest since April 9. The bellwether five-year bond rose for a second day, pushing down yields by 6 basis points to 16.31 percent, the lowest since May 30.

  “It’s a good sign for the Vietnamese economy, because a lot of investors thought the CPI for August was going to be 3 percent,” said Nguyen Pham Quoc Phong, an investment specialist at Cathay Life Insurance in Ho Chi Minh City.

  Declining global food prices also meant inflation quickened less than expected.

  Food prices fell 1.1 percent this month, after dropping 0.4 percent last month, the statistics office said. From a year earlier, food prices increased 69.4 percent, after gains of 72.7 percent last month.
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