VietNamNet Bridge – After many changes in the dong/dollar exchange rate, petroleum and electricity prices, a question has been raised by analysts as to how the basic wage increase will affect the prices of goods and services which have climbed to high levels already.

The government’s regular meeting in March ended with the Prime Minister’s conclusion that the government will initiate the process of raising basic wages for laborers beginning in May. Under the government’s decree No 22, the basic wage will be 830,000 dong instead of 730,000 dong. The resolution on the allocation of the state budget ratified by the National Assembly several days ago also stipulates the sum of 27 trillion dong to be spent in 2011 to serve the plan to increase wages.

The recent wage increases showed that the changes did not have big impacts on the price levels. For example, in January 2009, the government raised the minimum wage of laborers to 650,000 dong after a year of high inflation in 2008. However, the consumer price index (CPI) in January 2009 increased by 0.32 percent only, and the index increased by 1.17 percent in February, partially because of the increasing demand during the month of  Tet. After that, the CPI decreased by 0.17 percent in March.

In May 2010, when the basic wage was raised to 730,000 dong, the CPI in the next three months after May were considered the lowest levels in the year, hovering around 0.06-0.23 percent.

The figures have given experts more reason to believe that basic wage increases in 2011 would only have a small impact on the price ground or that the impacts would not last long .

The local newspaper VnExpress quoted Nguyen Duc Kien, a Member of the National Assembly’s Economics Committee as saying that with the repercussion of the electricity and petroleum price increases plus the basic wage increase may cause the CPI continue to increase until the end of the second quarter of the year. “However, with a series of measures to stabilize the macro economy the inflation will be gradually controlled,” Kien said.

Dr Nguyen Minh Phong, Head of the Socio-Economic Research Division under the Hanoi Socio-Economic Research Institute agreed, saying that the decision to raise basic wages will have little influence on inflation, because the price levels are now overly high already which have reflected the expectations on wage increases.

“I believe that the influences of the basic wage increase will be even lower than the previous basic wage increases,” Phong said.

However, the expert has pointed out that though inflation is not impacted by wage increases, from now until the end of the year wage increases will be carefully monitored especially since the government has decided to raise the petroleum and electricity prices at the same time.

“The government has made the right move when adjusting the petroleum price, because the prices in the world have been increasing sharply. However, I do not think that the petroleum price increase will make the CPI increase by only 0.4 percent,” Phong said.

“A lot of producers and suppliers have raised the sale prices of their products and services and reasoned them with the increase in the price of petroleum, even when the increase does not have big impacts on them,” he explained.

Meanwhile, according to Vu Dinh Anh, a well known economist in Vietnam, besides the above said factors, the inflation in 2011 would still bear influences from the world market. “No one can say for sure what will happen in the world market in the upcoming months, and what troubles will cause uncertainties in the global economy,” Anh said. “The public debt crisis in European countries and political uncertainties in Africa and the Middle East always have big impacts on the world’s economy”.

Anh went on to say that the results of the effort to curb inflation would still depend much on the implementation of the government’s Resolution No 11.

Commenting about the inflation rate in 2011, most experts believe that any forecasts given at this moment may not become true, because there are too many unpredictable factors that may influence inflation.

“I think only housewives can predict the inflation rate in 2011,” Phong joked.

The March economic report released by the research team of Standard Chartered Bank said that Vietnam will still have to fight against inflation in the remaining nine months of 2011. The report has raised a question about the possibility of Vietnam having high inflation rates again like in 2008 after the CPI sharply increased by two percent a month in the first quarter. However, the experts believe that the scenario would only occur in the worst conditions. In a slightly better scenario, Standard Charted thinks that the CPI would increase by one percent a month on average in the next months.

Tuyet Ngan