Vietnam inflation cools in July

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Consumer prices rose only 0.06 percent in July from June, the lowest rise since March 2009, according to figures released Saturday by the General Statistics Office.

The inflation rate in July was 4.84 percent compared to December last year, which means the increase in prices should be limited to 3.16 percent in the remaining five months or the annual inflation target of 8 percent will be missed, the GSO said.

Vietnam is targeting 6.5 percent growth this year.

Prices were stable in the country's biggest cities, with Ho Chi Minh City's inflation rate down 0.09 percent and Hanoi's up 0.25 percent in July against June.

Inflation slowed in July because input costs became stable and banks lowered their interest rates, the government cited experts as saying in a report published Saturday.

"I had been expecting inflation for the full year to be in double-digits," said Adam McCarty, chief economist at Mekong Economics in Hanoi, in a telephone interview on Saturday.

"Given these figures, there's probably some scope for the central bank to loosen monetary policy a bit further."

Vietnam's policy makers urged banks to reduce interest rates to bolster the economy after first-quarter credit expanded by 3.3 percent, compared with the central bank's full-year target of 25 percent.

Prime Minister Nguyen Tan Dung's government is targeting 6.5 percent growth in 2010.

"Inflation will probably slow some more in coming months," Kevin Grice, a London-based economist at Capital Economics Ltd., said, in a July 19 note. "Food and transportation costs have moved lower."

Prices in the category including rice climbed 9.28 percent, compared with 9.34 percent in June. Vietnam is the world's fifth-biggest rice consumer.

Autumn harvest

Prospects for a good autumn food harvest may help Vietnam further contain inflation, Alan Pham, chief economist at VinaSecurities, a unit of VinaCapital Investment Management Ltd., said in a note this month. VinaSecurities predicted a year-end inflation rate of 8 percent to 9 percent.

Prices for some varieties of rice fell by as much as 0.7 percent in the week to July 2 from the week before, the agricultural attaché's office at the US embassy in Hanoi said in its latest price update, released July 15.

Still, Vietnam's move to target growth over managing inflation is a "dangerous strategy," given its "low" level of foreign reserves and a lack of confidence in the dong, Grice said.

The country's reserves fell to $15.2 billion at the end of 2009 from $23 billion in 2008, according to the World Bank. The Vietnamese currency has fallen 3 percent this year, according to Bloomberg data.

"Growth is picking up, wages are rising rapidly, and, from what limited data are available, there appears to be little spare capacity in the economy," Grice said.

Loans from the beginning of the year to mid-June increased 10.5 percent, helping Vietnam's economic growth accelerate to 6.4 percent in the second quarter from a year earlier, compared with 5.8 percent in the first three months of 2010.

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