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July 25, 2008

Vietnam: Inflation hits 27%, exports boom
Vietnam's inflation climbed to 27 percent in July, possibly the highest in 17 years, highlighting price pressures that could intensify after this week's fuel price rise and adding to expectations for more rate rises, reported Reuters.

Analysts said only a small part of Monday's 31 percent rise in petrol prices might be captured in July inflation data, making it likely the annual pace of growth in consumer prices will spike to 30 percent in August or September.

At that rate, Vietnam would have the highest inflation in Asia.

It also sets the scene for possibly another round of monetary tightening in the economy, where bank lending rates are already at 21 percent after three rate rises so far this year.

"One more rate rise will be needed," said ING Bank economist Tim Condon.

"They need to demonstrate that they are not indifferent to ever-accelerating inflation."

The government estimated consumer prices in July would be 27.04 percent higher than a year earlier, marking the ninth consecutive month of double-digit inflation and a rise in inflation from June's 26.8 percent reading.

Historical monthly inflation data is not fully available, but the July rate could be the highest since 1991 when Vietnam reported annual inflation of 67.5 percent.

Its estimates for trade, also released on Thursday, showed Vietnam continued to buck the Asian trend and was set for a lofty 37.7 percent jump in exports in the first seven months of 2008.

The trade deficit for the January-July period doubled to $15.01 billion, but more due to nearly 91 percent jump in the imports of expensive fuel in a nation heavily reliant on imported refined oil.

The widening trade deficit has taken its toll on the currency <VND=> and forced the central bank to supply dollars as well as to come down heavily on speculators in the dong black market.

At one point in June, offshore investors were pricing in more than 30 percent depreciation in the dong within 12 months. The central bank's intervention and restrictions have brought the black and official markets closer this month, with interbank trades done between 16,500 and 16,850 in recent weeks.

The dong barely reacted to Thursday's data, while the main stock index .VNI extended a losing streak in place since the fuel price rise, taking its losses this week to 10 percent.

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