COST OF LIVING
Prices hit 10-year high

Inflation at 8.9% in June; possibility of 7% rate for the whole year

BANGKOK: -- Consumer prices hit a 10-year high of 8.9 per cent last month, heightening anticipation the monetary authorities will soon take interest rates off cruise control and shift up a gear to dampen inflation expectations.

The Commerce Ministry said escalating oil prices helped push last month's inflation up to a level not seen since June 1998. With the world oil price pegged to soar to US$150 (Bt5,000) per barrel, the ministry has revised its oil-price base for inflation calculations from $105 a barrel to between $120 and $125.

"The ministry expects the average oil price will be $142 a barrel in the remaining months, which would drive inflation to 7 per cent for the year," deputy permanent secretary Pairoa Sudsawarng said yesterday.

Inflation in the first half shot up to 6.3 per cent, exceeding the ministry's whole-year target of 5.5 per cent.

"Inflation in June surpassed our expectations and market consensus only to firm up the chances for a policy rate outcome of a 50-basis-point hike when the Monetary Policy Committee meets mid-July," Jun Trinidad of Citigroup wrote in a report entitled "Thailand Economic Flash".

"We believe policy-makers may want to start rushing the adjustments to the policy-rate setting in view of the accelerating inflation momentum. Core inflation in June crossed 3.5 per cent, the high end of the Bank of Thailand's annual core-target range, a first since the Bank of Thailand adapted the inflation-targeting programme."

However, the Commerce Ministry remains optimistic the oil-price spurt may have run out of gas and that oil prices will not rise as expected in the remaining months, so it has left its annual target unchanged at 5.5 per cent for the year.

Oil prices averaged $103.80 a barrel in the first half, peaking at $136.50 late last month, compared with $65.70 in June 2007.

Pairoa said last month's high inflation rate was acceptable for the economy and in academic terms, because it was due mainly to the skyrocketing oil price, which affected all other countries.

In May, inflation peaked at 25.2 per cent in Vietnam, 10.4 per cent in Indonesia, 9.6 per cent in the Philippines, 8.2 per cent in India, 7.7 per cent in China, 7.5 per cent in Singapore and 3.8 per cent in Malaysia.

However, the heat-up in inflation may suffocate consumer sentiment as the cost of living goes up, but incomes remain stagnant, she said.

Prices of food and beverages increased 11.4 per cent last month, with flour jumping 35.8 per cent, pork 31.6 per cent and eggs and dairy products 11.1 per cent year on year.

Non-food and beverage prices increased 7.2 per cent, largely from the oil price increasing 44.7 per cent and transportation and communications costs rising 16.8 per cent.

Last month's core inflation, which excludes volatile energy and food prices, increased 3.6 per cent year on year and 0.9 percentage point from May.

Core inflation in the first six months of the year was 2.2 per cent.

-- The Nation 2008-07-02

And banks pay 2% on deposits. Thanks.

Pairoa said last month's high inflation rate was acceptable for the economy

Then I am relieved ...!

Indeed. But you forgot another feel good quote....

However, the Commerce Ministry remains optimistic the oil-price spurt may have run out of gas and that oil prices will not rise as expected in the remaining months, so it has left its annual target unchanged at 5.5 per cent for the year.


Even in... december, they will tell us that inflation for 2008 will be 5,5 %.

Thread title is misleading - "Prices hit 10 year high" - does it mean that 11 years ago prices were higher than now?

What they mean is inflation, or price increases over a certain period of time, are highest in ten years. 11 years ago, after baht devaluation, inflation was still higher than now.

I get only 0.75% on mine

Mingwan's obvious complete disconnect to the real world is frightening. I was told that when the government was first put together that Mingwan would most probably end up as Tourism and Sports Minister (which still could be the case post censure debate), but now I am wondering if even this is too much. Samak really needs to move him out quickly and bring in someone with some experience in economics. Simply frightening.

You're right. He's coming from another planet, far away in another galaxy...

Do you remember that one month ago he wanted... to patent the... full moon party... ?

I mean this simple fact tells us that he's hopeless...

Yet Samak has him as the main inflation fighting guru. I never thought I would say this, but I hope Dr. Olarn does take this position or at least someone who can spell economics.

Don't forget that he was in charge of PPP's economic platform for several months (albeit during election campaign). He was even touted as a possible Finance Minister.

I haven't forgotten. He was offered the job and turned it down (showing he does have some smarts). He would not be my first choice, but he is an economist and neither the FM or CM have any economics background. Some is better than none.

Posts were too close to eachother, I meant Minkwan, not Olarn.

Which position is Olarn going to take? Finance or Commerce? If latter, can he work around Surapong? That alternative medicine doctor's ego is ginormous, I won't be surprised if he starts by lecturing Olarn on how to forget everything he knows an adapt new methods to keep up with the global age or some crap.

PPP has no hope with intellectual midgets in charge, even if they get professionals like Olarn to work for them.

Even if they get professionals in they wont be able to do anything without the support of big factions. One reason for delaying the reshuffle is that the factions of PPP may rip themselves apart over seat grabbing if it is not all nicely sorted first. Even then, well we heard one of the ministers under Newin complaining he couldnt do his job because of Newins direct interference in decision making.
It is not a really good time to have such things going on, but hey it'll probably result in some good stories....

As most of this inflationary pressure appears energy cost driven as with just about everywhere else what will happen if they raise rates? I expect again as with everywhere else Thais will simply max out the creditcard at the pumps rather than get out of their cars!

Furthermore (not being an economist) can someone with solid experience in this area tell me why if consumer spending nose dives as oil prices remain high why have and are we seeing such inflationary pressure still evident in most market economies?

Many thanks


Mak

Mak, re your question as to why we are seeing inflationary pressures remain despite declining consumer spending due to high oil prices:

There are many good articles showing why energy prices continue to rise (continued strong demand from India and China with no increase in supply). Increasing energy prices relate to increasing production costs of most consumer items, causing producers to increase their prices to pass this cost on to consumers. Over time, producers will lay off people (high unemployment) and stop producing goods that people can no longer afford. This, of course, will cause further declines in consumer spending as people lose their jobs and eventually, the demand for oil will decrease globally despite infrastructural spending in places like India and China, but this will take time.

The great fear is that we will enter a period of stagflation (slow economic growth and rising prices). Given the current scenario, this is a real possibility. In Thailand, there currently is no coordinated energy policy to mitigate the impact of the current situation and no one with any degree of experience to implement one. You say you are not an economist and I know I am not an economist. Now imagine you and I running a country in these times.

hopefully all my money stays in europe, we got 6% since a few weeks now and there are talkings to raise it higher.

Try the AUD ... parity against the USD by end of the year and rates at 7.25% ... bring the baht in when u need it only !

Don't forget that there were alsoo huge income increases in the past fiew months, upto 50% in farming, 17% in manufacturing and so on. Many people got extra dosh to spend.

The 0.75 is a special priviledge given to foreigners on current accounts, for those who are curious at the different rates

How lucky we are....................not, me thinks @#$#%^^&*%$ ect. ect.

I wonder how much they get from all the 800k,s we have to deposit for the 3 months qualifiying period.

marshbags

This post has been edited by marshbags: 2008-07-03 17:04:23

If anyone is interested, an excellent website dealing with economic issues in Thailand can be found at: http://thaicrisis.wordpress.com/

All this is very interesting, but for those of us that like to take a practical look at things - How much do I have to pay for a beer Chang at Lotus today?

Can anyone tell me how much a 25kg bag of top quality rice costs now at Tesco or Carrefour?

you are so very right, 'schluckebier' (thai: 'nak duem'?). and if beer chang is too expensive, we beat inflation and drink beer archa....and we'll keep our feet tight to the ground (btw, lotus never was the cheapest source for alcohol, look up some chinese retailer and you can buy anytime you want, not the lotus restrictions)

That is utter tosh. Butter alone was hiked from some Bt45 to around Bt75 so a mere 67% increase there. Cheese seems to have increased over 100% for some brands with nothing at less than 50% increase. Pork went from a low of about Bt60 a kilo to double that so I don't know where 31.6% increase came from ? Out of someone's imagination I think.

Fuel up 100% in 12 months.

From business, various inward costs up by about 10-20% and some only curtailed because we would have to refuse to purchase them if prices went higher. Customers cannot take the increases as they are suffering and tourists are hit with poor fx rates in the key UK and USA markets.

If someone actually believes we are only expereincing sub 10% inflation I'll eat my hat. I say about double that across the board.

Inflation has always been one of the best 'educators' around.