Higher inflation on the cards for next year

The Nation (4 December 2007)

Thailand is bracing for higher inflation next year, with consumer prices expected to rise 3-4 per cent, from 2.5 per cent this year, due mainly to high energy prices.

The Commerce Ministry yesterday came up with two inflation scenarios based on controllable key factors like gross domestic product (GDP), exchange rates, interest rates and minimum labour wages, as well as crude-oil prices, saying inflation could rise to 3-3.5 per cent, or even 3.5-4 per cent.

The scenarios were released after inflation spiked 3 per cent year on year last month, compared with only 0.4 per cent in October. Together with a global economic slowdown and the US sub-prime mortgage fiasco, high oil prices will remain a risk factor to the economy next year.

The National Economic and Social Development Board predicts the Dubai oil price will be between US$75 to $80 (Bt2,500 to Bt2,700) per barrel and that the baht will average 32-33 to the greenback. Despite the high oil prices, the Thai economy is expected to expand 4-5 per cent next year, following 4.5-per-cent growth this year, the think-tank said yesterday.

The Commerce Ministry's prediction of 3-3.5-per-cent inflation was based on GDP growth of 4-5 per cent, the baht stabilising at 33-33.50 against the US dollar, a repurchase rate of 3-3.5 per cent, a minimum wage of Bt194 a day and Dubai crude oil remaining at $80 to $85 a barrel and retail petrol at Bt29.39 to Bt30.09 a litre.

Keeping the GDP growth, repurchase rate and minimum wage the same, the ministry predicted 3.5-4 per cent inflation through slight changes in the other figures: a weaker baht at 33.50-34 to the dollar, crude oil at $85 to $90 a barrel and retail petrol at Bt30.09 to Bt31.39 a litre. But for the strong baht, energy costs would be higher and hence push up inflation.

Internal Trade Department director-general Siripol Yodmuangcharoen yesterday named the price of oil as the most important factor affecting inflation. The current high prices will continue into next year, when the Dubai price is estimated to average $85 a barrel, compared with an estimated average of $58 to $65 this year. The expected average retail price of petrol is expected to rise from Bt28 a litre this year to between Bt30 and Bt31 next year.

Although Dubai crude recently surged past $80 a barrel and inflation skyrocketed last month, Siripol insisted this year's inflation rate would be within the 2.5 per cent target. In the first 11 months, inflation was 2.2 per cent.

Due to several rounds of fuel-price increases, some goods and services have gone up this year. For instance, milk-product prices rose 8 per cent, Siripol said.

He insisted the Energy Ministry's decision to float the price of cooking gas would have only a minor effect on inflation. It is also an indirect cost of the food and services sector. For instance, the cooking-gas price will increase Bt18 per 15-kilogram tank and food dishes 4-5 satang.

Meanwhile, the department will soon launch a campaign in which participating shops will hang up a banner promising consumers to make price increases in satang.

Commerce Minister Krirk-krai Jirapaet said this would raise the value of satang coins, while consumers would not feel much affected. For example, if the price of cooking gas raises the cost of making a meal 2 satang per dish, vendors can cover the cost by raising the price 50 satang, say from Bt20 to Bt20.50.