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HANOI : Vietnam's blistering economic growth is attracting foreign investors, but the boom is proving costly for households, which face big rises in the price of basic products such as rice.
Consumer prices rose 9.34 percent year-on-year in October, after an 8.8 percent increase in September, according to the General Statistics Office (GSO).
Inflation is worrying Hanoi, which aims to keep the rate below the growth in gross domestic product. Vietnam's economy grew by 8.16 percent in the first nine months of the year.
The alarm bells grew louder this week as the national assembly seized on the issue, with Prime Minister Nguyen Tan Dung saying: "We want a higher economic growth and a lower inflation rate."
The price of food, which forms more than 40 percent of the basket of goods used to calculate Vietnam's inflation rate, rose 13.94 percent in October. The cost of rice and other grains alone increased by 15.98 percent.
"Global rice prices are high and global rice prices stay high as long as oil prices are high, because farmers need to buy fertiliser and fertiliser is a by-product of natural gas," said Jonathan Pincus, economist with the UN Development Programme (UNDP).
Vietnam joined the World Trade Organisation in January, and is opening its markets up to the world.
Dao Viet Dung of the Asian Development Bank warned this means "it is also more open to external shocks like the increase in oil prices... resulting in the increase of pressure on prices."
He also pointed to the property fever gripping Vietnam, from northern Hanoi to the southern economic centre of Ho Chi Minh City, the former Saigon.
The price of construction materials such as steel and cement rose by 11.72 percent in October.
Economists say pressure is increased by the huge inflow of foreign direct investment and the increasing use of credit (up 25 percent in 2006 and 35 percent by mid-2007, according to the World Bank), both for consumption and business lending.
"It's not good for the poor at all and it's probably one of the reasons why the government is so keen to keep inflation under control," said Pincus.
He added that while there was no immediate problem for investors, there was a risk that inflation would give rise to concern about Vietnam's competitiveness.
"If inflation is going up, people will demand higher wages, it's natural," he added.
Hanoi has taken measures to curb price pressures, selling bonds and increasing bank reserves to mop up liquidity.
But Pincus said it would have to go further and increase interest rates to encourage saving.
- AFP/ir
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