Vietnam Cuts Fuel Prices to Ease Inflation From 28.3%

By Nguyen Kieu Giang

Aug. 27 (Bloomberg) -- Vietnam lowered gasoline prices for a second time this month to ease Asia's fastest inflation after crude oil declined.

The Southeast Asian nation cut the price of the most commonly used grade of gasoline to 17,000 dong ($1) a liter from 18,000 dong to ``reduce the cost of production and reflect the price globally,'' Deputy Minister of Finance Tran Xuan Ha said today in Hanoi. The new prices are effective immediately.

``The move is good as it reflects the recent drop in international prices,'' said Hoang Thach Lan, chief analyst at Ho Chi Minh City-based SME Securities Co. ``It has boosted trading volume in the stock market today.''

The reduction may add to investor expectations that Vietnam's inflation is close to peaking at 28.3 percent. The benchmark stock index is poised for the biggest monthly gain since January 2007, recouping more than a third of its losses this year.

The VN Index gained 0.03 percent to close at 561.85, the highest since March 20. The measure has gained more than 24 percent this month, the world's best performing, after the government reduced fuel prices and widened the daily trading limit for stocks.

The government today also lowered kerosene prices to 18,000 dong from 19,000 dong, according to a joint statement by the ministries of finance and trade.

$100 Barrel

Crude oil futures have fallen 21 percent from a record $147.27 a barrel on July 11. Contracts for October delivery rose as much as 85 cents, or 0.7 percent, to $117.12 a barrel on the New York Mercantile Exchange today.

``If the international price falls below $100 per barrel, we will further reduce the domestic price,'' Ha said. Should oil decline below $110, Vietnam will introduce a 5 percent fuel import tax to cover losses for diesel companies, he said.

Inflation quickened this month after the government in July raised fuel costs by about a third, a record amount. Even taking into account the first reduction on Aug. 14, prices of 92-RON gasoline are still about 17 percent higher.

Gains in consumer prices accelerated from 27 percent in July. Prices in the category including transport led the index higher, rising 9.1 percent month-on-month after gains of 0.6 percent in July. From a year earlier, transport costs were up 25.6 percent, compared with 15.3 percent last month.

Inflation may peak next month at about 29 percent and lose pace in coming months as the economy slows, JPMorgan Chase & Co. said after the figures were released. Gains in consumer prices will probably reach their height at 28.4 percent next month, according to HSBC Holdings Plc.

To contact the reporter on this story: Nguyen Kieu Giang in Hanoi at giang1@bloomberg.net