Vietnam New Year shoppers defying central bank spurs inflation

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Consumer demand for holiday goods and transportation will grow 10 percent from last year, according to a government forecast that urged authorities to monitor and stabilize prices.

Asia's fastest inflation is the last thing on Tran Hang's mind as she jostles fellow shoppers at a street stall in Hanoi's Old Quarter to snap up Belgian chocolates and Thai candies for Tet, or lunar New Year.

While Prime Minister Nguyen Tan Dung and the central bank urged consumers to spend less to usher in the Year of the Dragon, the 25-year-old office worker said she plans to spend about $100 more than she did in 2011 for the country's biggest festival.

"You can't celebrate Tet by spending less than you did last year," said Hang, who donned a white polka-dotted raincoat during a light drizzle to shop for presents she would take back to her hometown for the nine-day holiday. "It doesn't feel right to cut back even if everything is more expensive."

Consumer prices climbed more than 17 percent in January, the fastest among 17 Asia Pacific economies. A surge in spending on new clothes, preserved fruit and decorations threatens to derail efforts to curb price gains that triggered the dong's biggest decline since 2008 and helped put an estimated one in 10 companies out of business last year.

Dung urged citizens to celebrate the holiday in a "frugal atmosphere," according to a Jan. 14 statement on the government's website. Central Bank Governor Nguyen Van Binh said he hoped modest Tet spending would help rein in inflation.

"We aim to change people's spending habits," said Binh at a press briefing Jan. 11. "People shouldn't spend too lavishly for an extravagant Tet. I want to see people limit their spending as much as they can."

Sales jump

Retailers and government officials say that's not happening. In the capital, retail sales during the holiday were forecast to rise as much as 22 percent to almost $1.4 billion, according to Nguyen Van Dong, deputy director of the city's Industry and Trade Service. That's equivalent to about 1 percent of estimated gross domestic product last year for the country.

Consumer demand for holiday goods and transportation will grow 10 percent from last year, according to a government forecast that urged authorities to monitor and stabilize prices.

Saigon Beer-Alcohol Beverages Corp., the country's largest brewer, said it will make 120 million liters of beer this month, 20 percent more than for last year's holiday season. Kinh Do Corp., (KDC) the biggest bakery, expects demand to be up 15 percent, according to spokeswoman Nguyen Thi Ngoc Lien. The bakery's holiday cakes and sweets are 10 percent more expensive this year.

"For food and beverage companies, Tet sales are critical," said Hoang Huong Giang, a Ho Chi Minh City-based consumer analyst at Viet Capital Securities. "Tet contributes 30 to 40 percent of their full-year profit."

Gold candy

Bibica Corp. (BBC), which sells pound cake and gold nugget-shaped candy, met its 30 percent holiday-sales growth target a week before the festival started, said Phan Van Thien, deputy general director of the Ho Chi Minh City-based company.

"Tet is a period where people feel they almost have to spend," said Darin Williams, managing director of research company Nielsen Co. (Vietnam) Ltd. "The cultural tradition is so strong. There's an obligation."

Like most Vietnamese, taxi driver Tran Dinh Long and his wife have been saving up all year for this celebration, deferring spending to replace an aging air conditioner and stove in order to maintain, or exceed, last year's holiday spree, he said. Their home is decorated with a new potted kumquat tree and a peach tree with blooming pink blossoms, symbols of wealth and happiness that are as ubiquitous in Vietnamese homes as Christmas trees during the winter holiday in the US.

Sticky cakes

Long said he would buy green tea, preserved kiwi, plums and apricots, along with steamed, sticky rice cakes to offer the numerous guests and family who will visit.

"It's our long-standing tradition that Tet is a period for consumption," said Long. "If your neighbors are buying trees and candy and new clothes for their children, you need to do the same."

The fireworks and feasting are in marked contrast to the economic gloom in the past two years.

After the global financial crisis in 2009, Vietnam pumped fiscal stimulus, subsidized a loan program and lowered interest rates as export markets weakened. While the moves spurred growth, they also fed a credit expansion that resulted in a series of dong devaluations, including a record 7 percent weakening of the currency in February 2011. The currency was the worst performer in Southeast Asia last year, stoking inflation that reached 23 percent in August.

Labor strikes

While the nation isn't alone in trying to battle price gains -- central banks from India to the Philippines raised interest rates last year as global commodity and energy prices jumped -- Vietnam has been hardest hit, with wage demands prompting strikes and demonstrations at companies such as Panasonic Corp. and Yamaha Motor Co.

Breaking that rising price-wage spiral may be even harder this year because a dragon year typically brings a spike in births, as many Vietnamese and other Asians believe dragon babies will be graced with intelligence, good looks, wealth and success.

That's good news for consumer-related companies, according to Viet Capital Securities, which advised the nation's biggest fuel supplier on selling part of the government's stake to investors. The company's 2012 Outlook report says this year will see an "exceptional" baby boom that will benefit producers of infant products. Viet Capital suggests investors consider Vietnam Dairy Products Joint-Stock Co. (VNM), which sells milk and infant powdered milk, and toymaker Duc Thanh Wood Processing. (GDT)

Dining out

Meanwhile, Vietnamese are celebrating, boosting sales at restaurant chains such as Al Fresco's Group, which has 33 outlets across the country.

"We are not finding that people are spending less," said Craig Jackson, Ho Chi Minh City-based general manager for Al Fresco's. "They are spending more."

For taxi driver Long, inflation is most obvious in the red li xi envelopes of money that Vietnamese hand out to relatives and friends at New Year. Last year he filled them with 20,000 dong ($1) bills. This year, he said, they will have to be replaced with 50,000 dong bills.

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