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Cablegate: Inflation in Vietnam Hits 10 Percent

VZCZCXRO9682
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHHI #2013 3330703
ZNR UUUUU ZZH
R 290703Z NOV 07
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC 6798
INFO RUEHHM/AMCONSUL HO CHI MINH 4001
RUEHGP/AMEMBASSY SINGAPORE 2461
RUCNASE/ASEAN MEMBER COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS HANOI 002013

SIPDIS
(C O R R E C T E D C O P Y - ADDED CAPTIONS)

SENSITIVE
SIPDIS

STATE PASS USTR FOR DBISBEE
SINGAPORE FOR SUSAN BAKER

E.O. 12958: N/A
TAGS: ECON EFIN PGOV VM
SUBJECT: INFLATION IN VIETNAM HITS 10 PERCENT

REF: A) HANOI 1729 B) HANOI 1475

1. (SBU) Summary: Vietnam's Consumer Price Index (CPI) has hit a
record high of 10% year-on-year for the month of November,
continuing an eleven-month trend of accelerating inflation. High
inflation will likely continue because of the recent increase in
fuel prices and retail price hikes for the holiday season. The GVN
continues to struggle internally about how to address the issue of
inflation. End summary.

2. (U) Vietnam's General Statistics Office (GSO) recently reported
that the November CPI hit a record high of 10.01% year-on-year. The
GSO attributes the continued rise to the effects of flooding in the
country's central region, which has hurt supply, causing food prices
to increase by 14.9 percent year-on-year in November (food and
foodstuffs comprise nearly 40% of the CPI basket). Building
materials were also up 14 percent year-on-year in November, however,
suggesting that food supply disruptions are not the full story.

3. (U) Local analysts expect that prices will continue to rise
following a 15% increase in fuel prices by the Ministry of Finance
(MOF) on November 22. The MOF, which controls the price of petrol,
raised the price per liter from VND 11,300 (approx. USD .71) to VND
13,000 (approx. USD .81). Local experts also forecast that
increased transportation costs will lead to a rise in production
costs that will be felt across the board in Vietnam, especially in
offshore fishing and heavy industry. They further predict this
pressure on prices, combined with the usual increase around the
holiday season, which is already evident in many retail outlets,
will continue to drive inflation through the Tet holiday in
February.

4. (SBU) The debate surrounding how to control inflation (Reftel A)
continues within the GVN. In a recent meeting at the State Bank of
Vietnam (SBV), an office director involved with monetary policy
plainly (and to our surprise because of his openness) stated to
Econoff that inflation was not the SBV's fault and that others in
the GVN were not allowing the SBV to control the problem. He
further commented that the SBV was looking forward to the day when
it could be a more independent central bank. (Comment: He was
likely referencing the pending law on State Bank reform, which is
supposed to allow the SBV to develop monetary policy with less
interference from political institutions. End comment.)

5. (U) Press reports noting the SBV's attempts to permit the Dong to
appreciate were quickly followed by additional reports that the MOF
had put a stop to such efforts. Perhaps looking for middle ground
among the various parties (e.g., SBV, MOF, and the Economic
Council), the Prime Minister recently announced the formation of a
"National Advisory Council on Monetary and Financial Policy," which
will be comprised of government officials and private-sector types,
to advise the GVN on financial and monetary policies and mechanisms.
The former Governor of the SBV, Le Duc Thuy, who left his post
amongst allegations of corruption, will serve as the vice president
of the Council.

6. (SBU) Comment: Double digit inflation is an unwelcome milestone
for the GVN. Given the falling value of the dollar elsewhere
combined with a rising CPI in Vietnam, even the strongest proponents
of a depreciated Dong may now have to re-evaluate their position.
Although consumer reaction remains muted, the inevitable supply
chain ripples of the gas price hike combined with predicted Tet
increases could lead to a more vocal public outcry. End Comment.


MICHALAK

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