Vietnam will raise its minimum wage by as much as 69 percent to help workers cope with the highest inflation in Asia.
The minimum wage will rise to a maximum of VND2 million (US$96) per month starting October 1 from the current upper limit of VND1.55 million, the government said in a statement Monday.
"From past experience, raising minimum wages will lead to higher prices of essential goods," said Ngo The Trieu, the head of public investment at Prudential Vietnam Fund Management Co. in Ho Chi Minh City. "However, it's a must-do because the wage raise has social, economic and political significance."
The wage will be increased to a range of VND1.4 million to VND2 million from VND830,000 to VND1.55 million, the government said. The raise will apply until the end of 2012.
Vietnamese inflation accelerated to the fastest pace in 33 months in August. Consumer prices climbed 23.02 percent in August from a year earlier, compared with 22.16 percent in July, according to figures released Wednesday on the website of the General Statistics Office in Hanoi. The monthly inflation rate in August was 0.93 percent.
The year-end figure may be as high as 21 percent, according to Dau Tu newspaper, citing Le Xuan Nghia, the vice-chairman of Vietnam's National Financial Supervisory Commission.
"The headline numbers are still ugly," said Edwin Gutierrez, a London-based portfolio manager at Aberdeen Asset Management, which oversees about $7 billion in emerging-market debt, including Vietnamese dollar bonds. "But the money supply and credit growth numbers are going the right way, which gives me some confidence about inflation coming down in the future."
Inflation in Vietnam recently has been driven in part by food prices. Ho Chi Minh City-based fund manager Dragon Capital this month cited a "surge" in retail pork prices as having fueled the July figures. Overall food prices increased 34.06 percent in August from a year earlier, Wednesday's report showed.
"If you look at the inflation basket excluding food, everything else is slowing down, so clearly the measures they've taken, particularly cutting credit growth, have had an impact," said Kevin Snowball, the Ho Chi Minh City-based chief executive of PXP Vietnam Asset Management Ltd.
Inflation expectations in Vietnam are not "well-anchored," Standard & Poor's said on August 19. It cited policy action "variability" in recent years and said the country faces risks of "near-term" economic and financial instability.
In spite of accelerating inflation, Vietnamese officials have been trying to find ways to allow commercial banks to cut interest rates, amid concern that high borrowing costs are pressuring highly leveraged companies.
"It would seem that from the point of view of policy rates they feel they've done enough," Snowball said. "They've got to make sure the economy is still functioning."
"I think the government at the moment is torn between two directions," said Nguyen Xuan Thanh, an economist with the Vietnam Program at the Harvard Kennedy School. "One is, the inflation number is still very high so they still need to tighten monetary policy. But on the other hand, firms are complaining louder and louder."
Vietnam's balance-of-payments surplus may be $2.5 billion to $4.5 billion by end-2011, the central bank said Tuesday. Foreign reserves have risen "significantly" on export earnings and remittances, it said, without giving a figure.