The Nation (31 Oct 2007)
Surging energy costs felt across the board, set to hit materials and wages.
Thailand is bracing for inflationary pressure next year following hikes in global oil prices, which are pushing up the cost of products and wages, the Bank of Thailand warned yesterday. Government Housing Bank president Khan Prachuabmoh said he foresaw a 5- to 10-per-cent hike in housing prices next year, following the jump in oil prices. Khan said yesterday higher oil prices would push up the cost of construction materials. Rising oil prices would also make it harder for developers in the suburban market to sell their units, as homebuyers were concerned about the commute and travelling expenses. Budget airline Thai AirAsia said it would raise its fuel surcharge by Bt100 on average for all routes within a month. Chief executive Tassapon Bijleveld said the surcharge was now set at Bt400 for domestic routes and from Bt600 to Bt750 for international routes. He expected other airlines to follow suit. Bank of Thailand governor Tarisa Watanagase said yesterday the central bank was keeping an eye on global oil prices, as well as the possibility of a later impact on inflation in Thailand. However, the BOT did not plan to change its core inflation target, currently set at 0-3.5 per cent. Central bank senior director Amara Sriphayak said the BOT feared a secondary inflationary blow would hit the Kingdom next year. The first-round is expected to occur after product manufacturers raise their prices due to an increase in oil-related production costs. After domestic demand improves and pushes up the economic-growth rate, manufacturers tend to hike wages, which would create a second impact. "We experienced this during the past economic recovery. When the economy picked up, interest rates rise and then the wages follow," Amara said. The warning came amid the latest hike in retail fuel prices by 40 satang per litre, which comes into effect today. Petrol and diesel hit new record highs, at Bt31.19 a litre for octane-95 petrol and Bt28.14 for diesel. Dubai crude oil rose yesterday to US$83.26 (Bt2,822) a barrel. Refined diesel stood at $100.97 a barrel, with refined petrol at $95.44. On Monday, oil futures for December delivery hit another record of $93.53 a barrel, but that weakened to $92.42 by midday in Europe yesterday. Thirapot Vajrabhaya, chairman of Shell Companies of Thailand, said the latest retail-price increase was due to marketing-fee losses of Bt0.50 per litre for diesel and Bt0.25 for petrol. He said that to cope with hikes over the past two weeks, retail fuel prices should have been raised Bt3-4 a litre. But they have been raised twice, by a total of only 80 satang. Despite the increases, the BOT's Amara said oil prices were still within the bank's estimates for the year. It had estimated average oil prices in Dubai would be $75 a barrel in its baseline-case scenario and $80 in the worst-case scenario. Next year, the central bank expects the economy to expand by 4.5-6 per cent with a significant increase in domestic demand, following a recovery in the last quarter of this year. Rising domestic demand would boost inflationary pressure, Amara said. However, the BOT still believes inflation will grow within anticipated parameters. It estimates the core-inflation rate for next year will be 1-2 per cent and headline inflation 1.5-2.8 per cent. This year, the gross domestic product is expected to expand 4.3-4.8 per cent, while core inflation is expected to be 0.8-1.3 per cent and headline inflation 1.8-2.3 per cent. However, if average annualised Dubai crude-oil prices rise to $80 per barrel, GDP this year could fall to 4.4 per cent.
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