Vietnam’s November Inflation Accelerates to 6-Month High

(Bloomberg) – Vietnam’s inflation quickened to a six-month high as health care and education costs climbed.
Consumer prices gained 7.08 percent in November from a year earlier, after rising 7 percent in October, the General Statistics Office in Hanoi said today. That was the biggest increase since May and the third straight acceleration. Prices rose 0.47 percent from the previous month.

Inflation is at risk of accelerating toward the end of the year as the government encourages banks to cut lending rates and help businesses, Do Thi Nhung, deputy head of the central bank’s monetary policy department, said on Nov. 5. Rising health-care and education-related costs are adding to price pressures that may limit the monetary authority’s scope to support an economy set to grow at the slowest pace in 13 years.

“The normal policy in Vietnam on government-related services like health and education is to stop prices in those areas from increasing at times of high inflation,” said Adam McCarty, a Hanoi-based economist with Mekong Economics. “But the government has to let them go up eventually.”

Vietnamese Dong

The Vietnamese dong rose 0.1 percent against the dollar yesterday, taking its gains for this year to 0.9 percent. The benchmark VN Index slipped 0.4 percent yesterday.

Prices in the category that covers health care and pharmaceuticals surged 45.4 percent from a year earlier, while education costs jumped 16.9 percent, according to today’s statement. Transportation-related costs gained 7.4 percent.

Vietnam’s government has let prices of health-care services and tuition rise “to take advantage of benign food inflation, as last year’s high inflation did not allow the government to raise health care and education fees,” HSBC Holdings Plc said in a report last month. “This is considered positive, in our view, as it allows the government to reduce the budget deficit and normalize prices.”

The nation is targeting growth of 5.2 percent for the full year, faster than the 4.73 percent rate of the first nine months and the slowest pace since 1999. Elevated inflation, partly due to a weak macroeconomic management framework, is a “major downside risk” for Vietnam, the Organization for Economic Cooperation and Development said in a Nov. 18 report.

The central bank has cut its refinancing rate to 10 percent from 15 percent at the start of the year, and its repurchase rate to 8 percent from 14 percent. Vietnam will reduce borrowing costs in 2013 as price pressures decrease, Prime Minister Nguyen Tan Dung told the National Assembly earlier this month.

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