“The cabinet approved the minimum wage rise proposed by the labour ministry,” said Deputy Prime Minister Prawit Wongsuwan, who is leading cabinet meetings as acting prime minister.

The new rate will take effect on Oct 1, bringing the minimum daily wage to a range of 340 baht (US$9.30) to 354 baht. The higher wages will be paid in the parts of the country with the highest costs of living.

This means workers in major cities like Bangkok, Phuket and Chiang Mai will benefit from the biggest-possible increase, of 8%.

It is the first time in two years for the government to lift the minimum wage. Despite giving working consumers more money to spend – which could create a multiplier effect that reverberates throughout the economy – many companies fear the higher labour costs will hurt profits right as they emerge from a nearly three-year, Covid-induced coma.

Although Thailand’s economy is recovering from the pandemic it remains fragile as it also deals with rising fuel and food prices, blows mostly delivered by Russia’s invasion of Ukraine.

“The wage hike will definitely affect our businesses as it pushes costs higher,” said Kriengkrai Thiennukul, chairman of the Federation of Thai Industries. “With the higher wages, prices of consumer and other goods will also rise, and inflation is already at a concerningly high level.”

The kingdom’s headline inflation rate in August hit 7.86%, a nearly 13-year high, according to the ministry of commerce, which forecasts inflation for the whole year to average 5.5% to 6.5%.

The Kasikorn Research Center, a think tank connected to Kasikorn Bank, says the higher wages will burden the labour-intensive agriculture, retail, restaurant, construction, garment and hotel industries. As a result, it says these sectors can expect around 5% to 15% smaller profits.