Vietnam raised domestic fuel prices by as much as 36% yesterday, the first increase in five months, raising the spectre of even higher inflation, more interest rate rises and slower economic growth.
The steep increase in the price of petrol and diesel in Asia's second largest importer of these products came as a shock to consumers, many of whom were seen thronging gas stations before the new prices came into effect at 10am.
Analysts predicted inflation would hit 30% next month, the highest level in Asia.
The dong fell 4.5% against the US dollar in the black market as Vietnamese rushed to protect their money from being eroded by rising inflation. The Ho Chi Minh Stock Exchange fell 2.5%.
“Retail fuel price increases would be a very bad news for the stock market as the inflation rate could be worse in the months to come,” said Vo Quoc Khanh, head of research at FPT Securities.
Vietnam has been slower than its neighbours such as China, Malaysia and India in cutting subsidies and bringing domestic prices closer to international levels.
Yet, less than two weeks ago, the government had ruled out rises in fuel prices for the rest of the year, suggesting it preferred to bear the cost of subsiding petroleum rather than pushing consumer prices any higher.
Source : Reuters
