Vietnam Inflation Accelerates, Suggesting Future Cooling Efforts

* APRIL 24, 2011, 3:40 P.M. ET

Vietnam Inflation Accelerates, Suggesting Future Cooling Efforts

By NGUYEN PHAM MUOI And VU TRONG KHANH

HANOI—Vietnam's inflation accelerated at its fastest pace in almost two and a half years in April, ramping up pressure on one of Asia's most troubled economies and suggesting further efforts to rein in prices could be in the works.

Consumer prices jumped 17.51% in April from a year earlier and 3.32% from March, the General Statistics Office said Sunday, further casting doubts on the ability of authorities to cap inflation at 7% this year. Last year, inflation reached 11.75%.

It was the fastest pace since December 2008, and comes after Vietnam's consumer price index in March rose about 13.9% on year and 2.17% on month.

"The government's tightening measures appear to be right, but the implementation of the measures should have been more effective," said Le Tham Duong, an economist with Ho Chi Minh City Banking University. "It should have lowered the gross domestic product target. You just can't try to tame inflation while aiming for a high GDP."

Like other Asian nations, Vietnam is grappling with the threat of inflation amid strong economic growth. But unlike its neighbors, Vietnam suffers from imbalances that threaten its economic stability and have put strong downward pressure on its currency, the dong.

Those imbalances recently forced Vietnamese authorities to succumb to pressure, both internally and externally, to overhaul its macroeconomic policies, which have long focused largely on delivering rapid growth. The government in Hanoi has unveiled plans to tighten monetary and fiscal policies, including a cut to public investment and the budget deficit, while ramping up domestic production and rebalancing trade. A credit growth target of 23% has also been lowered to less than 20%.

The State Bank of Vietnam has also made several interest-rate increases in recent weeks to help battle inflationary pressures, and also devalued the dong by 8.5% against the U.S. dollar on Feb. 11—its fourth devaluation in 14 months.

But the government has also unveiled potentially inflation-stoking policies such as sharp increases in electricity and fuel prices, along with a spike in wages.

The government also hasn't trimmed its gross-domestic-product growth target for the year of 7% to 7.5%, suggesting it may not have fully switched off its focus on economic expansion. GDP grew 5.43% in the first quarter.

Moody's Investors Service Inc. last week said that any changes to its negative outlook on Vietnam is partly contingent on efforts by authorities to arrest inflationary pressures.

The rise in inflation in April stemmed mainly from higher prices for education services, food and foodstuffs, and housing and building materials, Vietnam's statistics office said in a statement.

The inflation figures are based on the first 24 days of the month.

From the end of 2010, the CPI is up 9.64%.

"I think the government will now have to further its tightening measures," said Mr. Duong, the economist.

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