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SPECIAL REPORT: Business leaders are worried that the rising cost of energy, labour could put upward pressure on inflation and hit consumer spending
Think prices for food and fuel are high already? Even worse may yet come, argue some business leaders and economists.
While inflation, as measured by the consumer price index, stood at a moderate 3.4% last month compared with the year before, the numbers belie a rising sense of discontent that costs have spiralled in recent weeks.
Food and beverages in particular rose sharply in March, up 7.3% from last year, while electricity, fuel and water prices jumped 8.5%.
The price hikes reflect a variety of factors, including supply disruptions following last year's floods, the impact of drought conditions on the agricultural sector and higher energy costs.
Recent wage increases, and the expectation of further hikes to come, is certainly a factor, as is the fact that many businesses are only now adjusting prices after holding back last year.
Prime Minister Yingluck Shinawatra this month said food prices are expected to ease starting in June, as supply shortages from last year's floods ease.
But it's a sentiment that few consumers or business leaders share, given rising energy and labour costs.
The government's policy to lift minimum wages and civil service salaries has already led some producers to push up prices, said Pimonwan Mahujchariyawong, an economist at Kasikorn Research Center.
"But actually, prices now do not really reflect the rise in labour costs. We will start seeing the impact of the wage hikes over the next several months," she said.
The upward pressure on prices from rising labour costs may not ease until the second quarter of next year, Ms Pimonwan said. Minimum wages are due to rise to 300 baht per day across the country starting in January after being hiked in Bangkok and six other provinces earlier this month.
"Last year, price increases were driven by agricultural price increases and oil prices. This year, agricultural prices actually haven't risen much in many cases," Ms Pimonwan said.
"But labour costs and the overall increase in manufacturing costs is definitely a factor [for inflation]."
Kasikorn Research projects inflation of 3.9% this year and 4% next year.
Rahul Bajoria, an economist with Barclays, notes that not only prices have risen, but so has the expectation of future prices, suggesting that the central bank may begin to tighten monetary policy and raise interest rates in the second half of the year.
The rapid economic recovery from the impact of the floods has brought inflationary pressures to the fore, he wrote in a recent report. Rising energy prices, and its impact on transportation costs, has pushed prices upwards overall, while inflation expectations and pressures are likely to rise with the hike in minimum wages.
Local business leaders meanwhile agree that further price hikes may be in store.
Visit Limprana, head of the Food Processing Industry Club of the Federation of Thai Industries, said it will take two to three months for food manufacturers to decide whether to raise prices.
"Higher oil prices have affected us the most because they have pushed up logistics costs," he said.
Many producers have sought to maintain margins by switching to cheaper raw materials or investing in equipment to boost productivity and efficiency.
Somchai Pornrattanacharoen, president of the Thai Wholesalers and Retailers Association, said that some members have already hiked prices to cover their added labour and fuel expenses.
"For the most part, prices are expected to increase 5% to 10%, but it won't be until the end of May before we know for sure," he said.
Mr Somchai said consumer purchasing power remains weak as people rebuild savings after spending during the Songkran holiday break and to cope with price hikes in fuel and food.
"The general feeling of many is prices have increased all around. So we can expect many people to be more cautious in spending," he said. "I don't think many people see the minimum wage increase as enough to cover the rise in overall living expenses."
Mr Somchai wants the government to accept reality and allow market forces to run their course, rather than divert tax money to temporary measures that have little lasting effect.
Payungsak Chartsutipol, chairman of the Federation of Thai Industries, said the decision to raise electricity bills by 7% to 8% starting next month will have a significant impact on heavy industries such as steel and cement production.
"To what extent product prices will increase depends on market competition. If the manufacturers can maintain margins, they will keep prices stable," he said.
Vatchari Vimooktayon, the director-general of the Commerce Ministry's Internal Trade Department, said market competition should help restrain price hikes, particularly as demand and consumer purchasing power remains relatively weak.
"If you raise prices too much, your competitors may undercut you. It's better for consumers to be wise in their spending and their selection, rather than simply calling on the government to control prices," he said.
Mr Vatchari said that large manufacturers, such as the consumer goods conglomerate Saha Group, already paid wages above the minimum wage and was investing to improve productivity and efficiency rather than hiking goods prices to cope with rising costs.
"As a result, I think smaller manufacturers will find it difficult to raise prices under these circumstances, given the competition in the market," he said.
Somchai Sujjapongse, the director-general of the Fiscal Policy Office, said the government continues to use fiscal policy to ease the cost of living. Authorities recently agreed to extend tax cuts for fuel and subsidies on basic services.
The Finance Ministry also is likely to extend the current value-added tax rate of 7% indefinitely. If not extended, VAT is due to rise to 10% in October.
Free bus and rail services, due to expire this month, are also likely to be continued. The Bangkok Mass Transit Authority currently receives 192 million baht per month from the government for its free bus services in Bangkok, with the State Railway of Thailand receiving another 80 million per month for its free rail service.
Think prices for food and fuel are high already? Even worse may yet come, argue some business leaders and economists.
While inflation, as measured by the consumer price index, stood at a moderate 3.4% last month compared with the year before, the numbers belie a rising sense of discontent that costs have spiralled in recent weeks.
Food and beverages in particular rose sharply in March, up 7.3% from last year, while electricity, fuel and water prices jumped 8.5%.
The price hikes reflect a variety of factors, including supply disruptions following last year's floods, the impact of drought conditions on the agricultural sector and higher energy costs.
Recent wage increases, and the expectation of further hikes to come, is certainly a factor, as is the fact that many businesses are only now adjusting prices after holding back last year.
Prime Minister Yingluck Shinawatra this month said food prices are expected to ease starting in June, as supply shortages from last year's floods ease.
But it's a sentiment that few consumers or business leaders share, given rising energy and labour costs.
The government's policy to lift minimum wages and civil service salaries has already led some producers to push up prices, said Pimonwan Mahujchariyawong, an economist at Kasikorn Research Center.
"But actually, prices now do not really reflect the rise in labour costs. We will start seeing the impact of the wage hikes over the next several months," she said.
The upward pressure on prices from rising labour costs may not ease until the second quarter of next year, Ms Pimonwan said. Minimum wages are due to rise to 300 baht per day across the country starting in January after being hiked in Bangkok and six other provinces earlier this month.
"Last year, price increases were driven by agricultural price increases and oil prices. This year, agricultural prices actually haven't risen much in many cases," Ms Pimonwan said.
"But labour costs and the overall increase in manufacturing costs is definitely a factor [for inflation]."
Kasikorn Research projects inflation of 3.9% this year and 4% next year.
Rahul Bajoria, an economist with Barclays, notes that not only prices have risen, but so has the expectation of future prices, suggesting that the central bank may begin to tighten monetary policy and raise interest rates in the second half of the year.
The rapid economic recovery from the impact of the floods has brought inflationary pressures to the fore, he wrote in a recent report. Rising energy prices, and its impact on transportation costs, has pushed prices upwards overall, while inflation expectations and pressures are likely to rise with the hike in minimum wages.
Local business leaders meanwhile agree that further price hikes may be in store.
Visit Limprana, head of the Food Processing Industry Club of the Federation of Thai Industries, said it will take two to three months for food manufacturers to decide whether to raise prices.
"Higher oil prices have affected us the most because they have pushed up logistics costs," he said.
Many producers have sought to maintain margins by switching to cheaper raw materials or investing in equipment to boost productivity and efficiency.
Somchai Pornrattanacharoen, president of the Thai Wholesalers and Retailers Association, said that some members have already hiked prices to cover their added labour and fuel expenses.
"For the most part, prices are expected to increase 5% to 10%, but it won't be until the end of May before we know for sure," he said.
Mr Somchai said consumer purchasing power remains weak as people rebuild savings after spending during the Songkran holiday break and to cope with price hikes in fuel and food.
"The general feeling of many is prices have increased all around. So we can expect many people to be more cautious in spending," he said. "I don't think many people see the minimum wage increase as enough to cover the rise in overall living expenses."
Mr Somchai wants the government to accept reality and allow market forces to run their course, rather than divert tax money to temporary measures that have little lasting effect.
Payungsak Chartsutipol, chairman of the Federation of Thai Industries, said the decision to raise electricity bills by 7% to 8% starting next month will have a significant impact on heavy industries such as steel and cement production.
"To what extent product prices will increase depends on market competition. If the manufacturers can maintain margins, they will keep prices stable," he said.
Vatchari Vimooktayon, the director-general of the Commerce Ministry's Internal Trade Department, said market competition should help restrain price hikes, particularly as demand and consumer purchasing power remains relatively weak.
"If you raise prices too much, your competitors may undercut you. It's better for consumers to be wise in their spending and their selection, rather than simply calling on the government to control prices," he said.
Mr Vatchari said that large manufacturers, such as the consumer goods conglomerate Saha Group, already paid wages above the minimum wage and was investing to improve productivity and efficiency rather than hiking goods prices to cope with rising costs.
"As a result, I think smaller manufacturers will find it difficult to raise prices under these circumstances, given the competition in the market," he said.
Somchai Sujjapongse, the director-general of the Fiscal Policy Office, said the government continues to use fiscal policy to ease the cost of living. Authorities recently agreed to extend tax cuts for fuel and subsidies on basic services.
The Finance Ministry also is likely to extend the current value-added tax rate of 7% indefinitely. If not extended, VAT is due to rise to 10% in October.
Free bus and rail services, due to expire this month, are also likely to be continued. The Bangkok Mass Transit Authority currently receives 192 million baht per month from the government for its free bus services in Bangkok, with the State Railway of Thailand receiving another 80 million per month for its free rail service.
