The government said it would prosecute or revoke the licences of companies that increased the prices of their goods without sufficient justification, part of a plan to freeze prices for the rest of the year on goods ranging from coal to public transport.

The focus on energy follows recent efforts to control the cost of food, which accounts for two-fifths of Vietnam's consumer price index. Inflation accelerated to 27 per cent in July, overtaking Sri Lanka as the fastest rate in Asia.

James McCormack, Fitch's head of Asian sovereign ratings, said the announcement suggested "we will see further administrative controls rather than market-based controls" on inflation, which would do little to halt Vietnam's excessive growth in money supply.

"The government has clearly reached the conclusion that inflation is priority number one, the question is whether they can do something about it," he said. "I'm still not convinced."

While faster inflation has become a worldwide concern, Vietnam is among a handful of Asian countries struggling with prices rising at an annual rate at or above 20 per cent, alongside Sri Lanka, Mongolia, Cambodia, Pakistan and Kazakhstan.

The surge in inflation is seen as a test of the communist government's economic management as it seeks to engineer a soft landing for an economy showing signs of over-heating.

Vietnam has been transforming itself into one of Asia's fastest-growing manufacturing centres and leading recipients of foreign direct investment, in sectors ranging from computer chips to oil and gas.

The ministry of planning and investment last week unveiled curbs on the construction of golf courses, which has been encroaching on agricultural land. Since early 2006, new golf courses had been licensed at a rate of more than one a week, threatening an already shrinking rice acreage.

Vietnam's was the first central bank in south-east Asia to raise interest rates this year, drawing praise last month from the Asian Development Bank. But many economists have warned that rates would need to be raised further amid signs that foreign capital is continuing to pour into the country.

While the government yesterday indicated that it would impose sanctions on companies that push up their prices because of higher costs, it has itself been trying to cut its ballooning subsidy bill by raising retail fuel prices.

Sherman Chan from Moody's, said in a report last week that there was "a strong chance" of inflation reaching 30 per cent in the third quarter.

By Raphael Minder - The Financial Times - August 5, 2008