Resurgent inflation dampens Vietnam stimulus hopes

Vietnamese inflation accelerated in January, official data showed Thursday, reducing expectations of further monetary stimulus to boost the flagging economy.

Consumer prices were up 7.07 percent this month from a year earlier, following a 6.8 percent rise in December, the General Statistics Office in Hanoi said in a statement. Month-on-month prices were up 1.25 percent.

The rise was due to a "sharp increase in liquidity during the last quarter of 2012 and successive reductions in policy rates, along with the seasonal effect of prices during lunar New Year", Deepak K. Mishra, the World Bank lead economist for Vietnam, told AFP.

Authorities will have to "curb the growth rate of liquidity in the future" which should allow the inflation rate to come down in the second quarter of 2013, he added.

Vietnam repeatedly raised interest rates in 2011 to prevent the economy from overheating and to rein in double-digit inflation, but with the economy cooling the authorities last year resumed monetary stimulus efforts.

The central bank in December cut interest rates for the sixth time since March as annual economic growth slowed to the weakest pace in 13 years, at roughly five percent for 2012.

Resurgent inflation is now seen as limiting the scope for further monetary stimulus that could stoke price pressures.

"It will not be easy to keep inflation below the government's initial target of 6.9 percent" in 2013, said one independent analyst who asked not to be named.

"The authorities will have to be very careful about future monetary policy. It is too early to say if they will have to raise interest rates again. They are in the middle of nowhere and don't know which path to follow."

The communist nation's economic woes are compounded by worries over toxic debts in the banking sector, falling foreign direct investment and a string of financial scandals among state-owned firms.