Hanoi, January 29, 2008 - Vietnam's month-to-month inflation rate hit a whopping 2.38 percent in January, according to government figures released Tuesday, presenting a serious challenge to the country's fast-growing economy. Prices have risen over 14 percent in the year since January 2007, according to the Government Statistical Office.
"The situation is not very good, especially in view of the fact that inflation in Vietnam is twice as high as China and five times higher than Thailand," wrote Jonathan Pincus, head economist at the United Nations Development Programme's Hanoi office.
Pincus said high rates of credit extension from banks, resulting in a growing money supply, appeared to be responsible. Domestic interest rates have failed to keep pace with rising inflation.
Ngo Quang Luong, a senior official at the Vietnamese State Bank, said the inflation figures partly reflected traditional price hikes in advance of the Vietnamese New Year, or Tet.
Luong also blamed rising world prices for commodities such as fuel and steel.
The State Bank has a policy of keeping the Vietnamese dong roughly stable against the dollar, leading to rising commodity prices as the dollar has fallen.
Pincus said the State Bank was reluctant to let the dong appreciate against the dollar for fear of hurting the country's export-driven economy. Despite strong trade surpluses with the US, Vietnam's overall trade deficit doubled to 1 billion dollars in January.
"I think the State Bank of Vietnam does understand the situation very clearly, but needs more authority and tools to combat inflation," Pincus said.
