Vietnamese inflation accelerated for the first time in six months as food and education costs rose, signaling the government may have less scope to push for lower lending rates to bolster the economy.
Consumer prices climbed 8.92 percent in September from a year earlier, compared with an 8.18 percent advance in August, according to figures released Friday by the General Statistics Office in Hanoi. The reading is the highest since May. Prices rose 1.31 percent in September from the previous month.
Prime Minister Nguyen Tan Dung's government is targeting a 25 percent expansion in credit this year and 6.5 percent economic growth, even as inflation has held above its 8 percent goal for eight consecutive months. Today's data may fan concerns that the drive to increase loans and a recent devaluation of the dong conflict with price stability.
The latest inflation figure is "surprisingly high, even though we had expected greater price pressures this month as the effect of the dong's devaluation kicked in and world commodity prices rose," Hai Pham, a Singapore-based analyst at Australia & New Zealand Banking Group Ltd., said in a note. "We are concerned about high inflation becoming more entrenched in the coming months."
The State Bank of Vietnam weakened the dong's reference exchange rate by 2 percent last month, citing the need to narrow the trade deficit.
The dong traded at 19,490 per dollar at 1 p.m. in Hanoi from 19,099 before the devaluation was announced. The Ho Chi Minh City Stock Exchange's VN Index fell 0.2 percent today to 449.71, and is down 9.1 percent this year.
"Vietnam's expansionary fiscal and monetary policy are resulting in a weak currency and high inflation," said Jonathan Pincus, a Ho Chi Minh City-based economist with the Vietnam Program at the Harvard Kennedy School. "Unless we see evidence of tighter policy, we would expect prices to continue to rise."
The government has been urging commercial lenders to cut loan rates. The central bank said this month short-term lending rates in dong ranged from 12 percent to 15 percent, and that credit growth reached 16.3 percent in the first eight months of 2010 from the end of last year.
While the government is concerned that high lending rates could affect industrial activity, "premature" monetary loosening may cause a "deterioration" in the trade deficit and boost inflation, the International Monetary Fund said in a report this month.
Overall food prices gained 10.81 percent in September from a year earlier, while costs in a category including rice advanced 14.01 percent, today's report showed. Education prices jumped 15.56 percent from a year ago, and surged 12.02 percent from August.
"The lofty rise in education" largely reflects an increase in tuition costs as well as back-to-school spending, Matt Hildebrandt, a Singapore-based economist at JPMorgan Chase & Co., said in a note.
Economic growth may reach 6.7 percent this year, exceeding the government's target, Deputy Minister of Planning and Investment Cao Viet Sinh said on Sept. 17.