HANOI, Jan 24 (Reuters) - Vietnam's annual inflation rose to 7.07 percent in January, while prices increased 1.25 percent from December, the sharpest monthly gain in four months, consumer price index (CPI) data released on Thursday showed.

Prices are expected to further increase in February in the wake of Tet, the country's largest festival to mark the lunar new year, analysts said.

The January data, released by the General Statitstics Office, showed inflation accelerating from December, when the annual rise 6.81 percent and the month-on-month rise was 0.27 percent.

'Prices have been rising because of Tet, but the 1.25 percent increase (in prices in January from December) is rather high, in comparison to the same period in recent years,' economist Vu Dinh Anh at the Price and Market Research Institute said.

Consumer demand tends to soar around Tet, which will fall in early February. But state media have quoted businesses as saying they expected Tet demand to fall by up to a third this year from previous years.

Data showed medicine, healthcare, transport prices led the rise in the January index.

'Prices may further increase next month, and this will require the government to be cautious about containing inflation this year,' Anh said.

January's CPI reflects price changes between Dec. 15 and Jan. 15, during which the statistics office takes in all readings.

Vietnam's annual inflation peaked at 23.02 percent in August 2011, slowing since as the government tightened monetary and fiscal policies. The economy has also slowed, however, due to shrinking consumer demand and corporate bankruptcies.

The government wants to keep inflation between 6.0-6.5 percent, below its official target below 8 percent for 2013, but it has also flagged the risk of prices accelerating gain.

(Reporting by Hanoi Newsroom; Editing by Simon Cameron-Moore) Keywords: VIETNAM ECONOMY/INFLATION

(hanoi.newsroom@reuters.com)(+844 3825 9623)

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