Consumer prices surged 13.89 percent in March from a year earlier, the fastest on-year pace since February 2009, the General Statistical Office said Thursday, making it increasingly difficult for authorities to cap this year's inflation rate at 7 percent despite recently switching their focus from fostering growth to taming price pressures.

At the same time, Vietnam's persistently high trade deficit widened to $1.15 billion in March from a revised $1.11 billion a month earlier, said the deputy minister of industry and trade, Nguyen Thanh Bien.

Exports in March rose to $7.05 billion from $4.85 billion in February, while imports increased to $8.2 billion from $5.96 billion, he said, adding that for the first quarter, Vietnam's exports rose 34 percent from a year earlier to $19.25 billion, while imports rose 24 percent to $22.27 billion.

The trade deficit for the quarter was $3.029 billion, narrower than a deficit of $3.43 billion in the same period last year.

The General Statistical Office is expected to officially release trade data for March later this week or early next week, along with revised trade data for February.

The worsening data comes after the government last month decided to alter its policy of focusing on growth, finally giving in to mounting pressure to produce policies that may help guide the economy back to a healthier position.

Authorities have announced tighter monetary and fiscal policies, which will include cutting public investment and the budget deficit, boosting domestic production and rebalancing trade. It also said it would cut its credit-growth target to below 20 percent, from 23 percent.

The State Bank of Vietnam this month also raised two of its key interest rates to help battle inflationary pressures; on February 11 it devalued the dong by 8.5 percent against the dollar in its fourth devaluation in 14 months.

Inflation in March continued to rise mainly due to higher prices for education services, food and foodstuffs, and housing and building materials, the GSO said in a statement. From a month earlier, the CPI rose 2.17 percent, the fastest on-month rise since May 2008.

In February, the index rose 12.31 percent on year, and was up 2.09 percent from the previous month.

"It's impossible to keep inflation at 7 percent this year, but we have to keep trying to carry out the government's tightening measures," Nguyen Tien Thoa, head of the finance ministry's price-management department, said in a statement published in the central bank's Thoi Bao Ngan Hang newspaper.

Thoa said the key reasons behind the rising inflation include the economy's large total outstanding loans, which exceed gross domestic product by 20 percent, and the inefficient use of investment capital.

"It will take at least a couple of months before we can see if the measures really work," Thoa said.

For this year the government is aiming for GDP growth of between 7 percent and 7.5 percent and inflation of no more than 7 percent. It admitted last week that realising these targets now appears challenging, but hasn't decided yet to adjust them.

HSBC economist Sherman Chan said Vietnam's inflation rate is unlikely to show signs of easing until at least the third quarter because of surging global food and oil prices. She projects two one-percentage-point interest-rate increases in the second quarter to help slow inflation to the single digits by the fourth quarter.

"Meeting the official annual inflation target of 7 percent appears increasingly challenging...in light of surging global prices, we can only count on the monetary and fiscal tightening measures to curtail consumption and subsequently contain demand-driven inflationary pressures," she said.

Meanwhile, Bien said the shutdown of the Dung Quat Refinery won't have any adverse impact on Vietnam's trade deficit, adding that it had been planned. The government said earlier this week it shut the 130,000-barrel-a-day refinery Wednesday for two or three weeks for overall checking.

Bien said Vietnam will continue measures to boost exports, aiming to keep the trade deficit below 18 percent of total export revenue for the full year.

"Things are on track, and I think that we will be able to meet this target," he added.-

By Vu Trong Khanh - The Wall Street Journal - March 24, 2011