People shopping at a supermarket in HCM City. — VNA/VNS Photo
As the calendar inches towards July 1, a palpable sense of unease is spreading among households across the nation. The anticipated 30 per cent salary hike for public employees, raising the base salary to VNĐ2.34 million from VNĐ1.8 million, is sparking fears of price hikes. With many goods already witnessing sharp price increases in the first half of 2024, and incomes still struggling to bounce back from economic hardships, families are bracing for a potential squeeze on their budgets.
Major challenges with prices
Economic expert Lê Duy Bình, director of Emonica Vietnam, said that raising salaries would be essential to increase income for public employees to motivate productivity. Salary reform policies would also be necessary to stimulate demand and boost domestic consumption amid ongoing economic difficulties.
However, he expressed concern that salary increases could lead to inflation. He noted that the impact on inflation arose not from the actual scale but from the expectation factor.
Reflecting on previous adjustments, Bình highlighted that prices often rose even before the expected salary increase took effect.
He also pointed out that deciding to increase salaries from July 1 (mid-year) could reduce additional pressure compared to peak price periods such as the beginning or end of the year. Intervention through temporary price freezes could mitigate inflationary pressure for goods with state-controlled prices.
"For market-determined prices, policy communication solutions are necessary to reduce inflation expectations, preventing prices from rising in tandem with salaries," Bình said.
He emphasised the need to communicate to businesses and traders that price increases would adversely affect purchasing power in the current difficult economic context with weak demand.
Trần Thị Khánh Hiền, director of Analysis at MB Securities (MBS), noted that the salary increase was occurring amid rising inflation since the beginning of the year, which could create significant pressure in the third quarter.
According to the General Statistics Office, the Consumer Price Index (CPI) in May 2024 increased by 0.05 per cent compared to the previous month and by 4.4 per cent compared to the same period last year.
Hiền noted that rising pork price and heatwaves pushing electricity price up contributed to the price rises in May.
The average CPI for the first five months of 2024 was up by 4.03 per cent compared to the same period last year, with core inflation rising by 2.7 per cent. The CPI trend had been upward since the beginning of the year and was approaching the Government's target of 4.5 per cent, Hiền said.
Furthermore, Hiền pointed out that rising transport costs including airfares due to the recovery in tourism were significantly impacting domestic inflation. Exchange rate pressures also showed no signs of abating, which increased the cost of importing goods, raw materials, and fuel.
Before the planned salary increase, goods prices were already under substantial pressure as businesses faced higher input costs.
"The fastest production cost increase in nearly two years has led to price hikes, which could affect market demand in the coming months," MBS warned.
Strengthening control
Bình stressed the need for clarity regarding salary increases for public employees and the armed forces.
"The number of minimum-paid officials is only a few per cent of the population, not large enough to create real price pressure, so most of it is expectation. This information needs to be clear so that service and product providers can reconsider before raising prices," Bình said.
He also proposed that state management agencies increase inspections and supervision to promptly detect violations of competition laws and unreasonable price hikes that affect the market.
Many National Assembly deputies and experts suggested measures to prevent price increases following the salary raise.
NA Deputy Hoàng Anh Công, deputy head of the People's Petition Committee of the NA Standing Committee, noted that while the salary increase would benefit public employees, the Government and relevant agencies must take decisive measures to control prices and maintain macroeconomic stability.
This should include a thorough inspection of price listing processes, ensuring that price formation factors are checked to prevent unreasonable price increases that undermine the purpose of salary rises, thereby affecting government workers' livelihoods. Special attention must be given to essential food items and price listings at traditional markets.
Similarly, NA Deputy Vũ Tiến Lộc, a member of the National Assembly's Economic Committee, said that the proposal to increase the base salary was welcome news for government workers. However, past salary increases had often been followed by price hikes, causing more concern than relief for them.
The Government and the Prime Minister had worked out various measures to address this problem, and these efforts must continue. Relevant authorities should enhance the implementation and supervision of price declaration and public price listing measures. Strict enforcement against violations of price regulations was crucial.
In addition, proactive, flexible, timely, and effective monetary policy should be maintained, and coordinated with fiscal and other macroeconomic policies. Only when commodity prices are controlled, avoiding the situation where "prices rise before salaries rise" or "prices rise with salaries rise", could the purpose of salary increases for government workers be fully realised.
Deputy Minister of Finance Nguyễn Đức Chi noted that historically, prices often rose before salaries did, negating the benefits of salary increases for those on the payroll.
"However, in recent years, the Government, the market, and the public have adapted better, with less psychological impact when salaries are increased. Some past salary increases did not lead to price hikes," he said.
Lê Thị Tuyết Nhung, deputy director of the Ministry of Finance Price Management Department, said that at a recent Price Steering Committee meeting, the ministry had reviewed and proactively forecast various inflation scenarios, focusing on measures to control inflation.
The department would closely monitor the price changes of strategic commodities on global markets, geopolitical tensions, and their impact on domestic prices, taking timely and flexible measures to ensure the 2024 inflation target of 4-4.5 per cent would be met as set by the National Assembly.
Deputy Prime Minister Lê Minh Khái, head of the Price Management Steering Committee, has directed ministries and agencies to closely monitor fluctuating prices in both domestic and international markets to propose timely and appropriate measures and scenarios.
The goal is to maintain price control within the 4.5 per cent limit set by the National Assembly, ensuring smooth supply and circulation of goods to meet consumption demand.
Given the significant expectations associated with the upcoming salary increase, Deputy Prime Minister Khái stressed the importance of thorough inspection and enforcement of pricing policies to prevent unreasonable price hikes. Special focus should be on essential food prices at traditional markets.
To ensure timely and effective policy responses from the outset and to avoid confusion, Prime Minister Phạm Minh Chính has requested that ministers, heads of ministerial-level agencies, and leaders of provinces and cities continue to monitor market developments promptly and implement solutions to ensure the balance of domestic supply and demand, stabilise prices, and prevent shortages, hoarding, speculation, and unreasonable price increases.
"It is necessary to enhance the effective implementation and supervision of price declaration, price listing, and public disclosure of price information as per legal regulations. Ministries, sectors, and localities should regularly monitor information, keep track of market price movement of key commodities affecting the consumer price index, conduct inspections to ensure compliance with pricing laws, and strictly handle any violations," the Prime Minister said. — VNS