Thailand Crisis

This chart closes my “inflation tsunami” case for june (source Bureau of Trade and Economic Indices).

I’m sorry to have more bad news folks…

What is the PPI ? It “measures the average change over time in the selling prices received by domestic producers for their output“.

We could say that it’s the avant-garde of the inflation, the one you see around you, in your daily life… Those prices will fuel the prices of the goods at the end of the chain.

PPI is a precursor. Or a messenger.

You can see on the next chart that there is an obvious correlation between CPI (Consumer Price Index) and the PPI.

We touched the bottom in august 2007… Since then… it’s an explosion.

This is why the CPI (+8,9 % in june) will continue to increase in the coming months.

Those who say otherwise are deluding themselves. The PPI figures are a clear proof.

At such level, the businesses have to offset the increasing costs by increasing their own selling prices.

It’s Economy 101.

And it’s the inflation tsunami on the move.

The National Statistical Office has updated its Labor Force survey, with Q1 2008 figures (my old chart here).

Table 7 : “Average wage of Employed Persons by Industry“.

Something clearly happened…

Total average wages increased by 18,1 % compare to Q1 2007 (and +8 % compare to previous quarter) !

For agriculture sector, it’s even more astonishing : +47 % compare to Q1 2007, and +52 % compare to the previous quarter (Q4 2007) !

Non agriculture sector : +16 % year-on-year, but “only” +5,7 % compare to Q4 (it’s still a big increase).

Even though there is always a hike on Q1s compare to Q4… seasonal effect… but hikes on Q1 this year are much stronger.

It’s important to note that we are talking about Q1… Therefore the current gvt and all its “boost policies” is not really linked to this jump (albeit in march…).

It’s certainly more an effect of the… global inflation, particularily the huge increase of prices of agriculture products, etc.

And those wages increases are much higher than the growth… of the economy (GDP) !

Therefore, this money is going to fuel… inflation.

We see already the effects (CPI at +8,9 % in june, see my chart).

From my point of view : it validates the idea that the inflation is creating “spillover” effects… The BOT is going to increase its interest rates, it’s compulsory now. Wages can’t increase at such pace… it’s not sustainable.

Otherwise… welcome to the Zimbabwe path…

[if you want to look at the datas, click on the image

note : don't ask me why item 3 "Electricity, gas and water supply" goes from 20 000 THB on Q4 to 6 000 on Q1 ! Miracle of thai statistics ?]

Here is a new version of my chart about indexes (private consumption, private investment, industrial capacity utilization, business sentiment), with the datas for may (source BOT).

I’ve changed the methodology in order to ease the reading : base 100 for all indexes is january 2005.

Plus, I’ve added another component : “expected business sentiment” (3 months ahead).

One word on this survey conducted by the BOT every month. A reading inferior to 50 means that business sentiment has worsened, and superior to 50 has improved (and 50 = remains stable).

We need to go back to april 2004 to have a result superior at 50.

Last point -important I believe- look at the expected BSI in may… there is a severe fall. It means that businesses are very pessimistic about their perspectives for the 3 coming months…

Of course, it’s just a sentiment… but we never had such fall.

Here is the chart of Consumer Price Index with the (just published) june’s datas.

+8,9 % compare to june 2007, versus 7,6 % in may.

The index is at 127,7, versus 126,2 the previous month.

Core CPI (food and energy excluded) is at +3,6 % year on year.

I can already tell you that the CPI in july will be minimum at +8,9 %. And certainly equal or higher than 9,3 % (how ? Easy : base effect. Just copy the value of june for july, and compare with july 2007…).

And that in august, we will have +10 % (mark my words).

It’s the inflation tsunami on the move.

Prices of more products and services are about to increase in the coming weeks and months… despite all the tricks, postponements, delays used by the government.

Will the BOT increase interest rates (real rates are negative since way too long, look the chart here) but then fuel a recession ? Stay on hold ? Cut ? But that would send the THB to the toilets and increase the energy bill (imports of oil) ?

Checkmate.

All the other central banks face the same dilemna, more or less.

So what can we do ? I don’t know.

I know however that the whole story about “speculators” is bullshit.

And I know that the only way to really break the inflation is to really break the demand (of everything, from gasoline, raw materials, to new cars, to condos, houses, from steel to cheap loans… everything).

And the only way to really break the demand is to have… a real recession. A dirty one. A nasty one.

Of course, this idea isn’t very popular…

I remind you that we have dozens of millions of people (and soon hundreds if we continue with the growth rate) who were driving bicycles 15 years ago… and who now want (and can afford) cars…

O course it’s a very rough summary of the situation…

But this very simple fact is highly inflationary… Difficult to deny it.

Don’t get me wrong : I don’t blame the chinese and the indians (and many others). Their behavior is perfectly normal. We certainly would do the same. I would.

No rest. No rest on the energy front. PTT increased its prices yesterday.

Benzene 91 now sells at 41.79 baht, gasohol 95 at 38.19 baht, gasohol 91 at 37.39 baht, and diesel at 42.64 baht. However, PTT’s benzene 95 price remains at 42.09 baht while that of Shell is at 43.19 baht. (TOC)

And Shell increases by 40 satangs today, “bringing the retail prices to the new record highs“.
The octane-95 petrol will be Bt43.59 while diesel will be Bt43.44. (Shell is usually more expensive than PTT).

Here is an update of the chart…

Here is an update of my chart, with datas for april.

(Source EPPO, Table 2.1-4).

The drop in april (from 944 000 barrels per day to 830 000) was certainly caused by Songkran holiday. As for the value, EPPO says that the average price of imported crude oil in april was 105,35 USD per barrel (versus 99,11 in march).

As you know, we have to watch carefully the energy bill, because of the surge of oil prices… and the effects on the trade balance… therefore on the THB (currency). Everything is linked… Particularily when we speak about oil.

Anyway. I would like to add that the datas provided by EPPO and the Customs Department (compiled by the Bank Of Thailand) are different.

For instance in march, EPPO gives a total value of 2,9 billions USD for import of crude oil… While the Customs state 2,4 billions (roughly 13 % less) ! 9 months over 12, EPPO’s figures were higher than Customs.

And the exchange rates THB-USD are different too… ! And worse, even if you take in account the different exchange rates… you stil get different total in THB and USD… It prooves that the core of the problem is… volume.

I guess both have the same definition of a barrel of crude oil… I hope so… But for some reasons, the EPPO and Customs, both official departments, don’t have the same set of datas… Frustrating.

Here is a small chart about the value in USD of imports of crude oil (crude oil only), for both.

And it shows that one of the problem of the oil issue… is datas. I mean BP, EIA, IEA… prestigious and powerfull sources of infos… compile datas for production, consumption, imports, exports… for all the countries… provided by all the countries… after thoses datas are studied, charted, analyzed by everybody, peak oil believers and non-believers, government, professionals etc. …

My point : some data sets are not reliable. And worse : may vary from time to time.

Bottom line : when you read that “Global oil consumption grew by 1 mb/d in 2007” (source BP Statistical Review of World Energy 2008), you have to understand that there is a serious… fog around the math magic !

Okay, okay, what is important is the trend. Even if your data set is flawed, you can still make valid observations with variations.

But, if we start speaking about absolute numbers (like consumption was 1 million barrel per day higher in 2007 compare to 2006)… I mean… we need to be careful… nobody did actually and really count those barrels…

Sounds stupid to say but I can’t find any clearer way to say it.

The oil issue is just too burning, too essential, with too many geopolitics and economics links… it’s impossible to believe that all the datas are genuine and/or right.

There is always a fog around the datas whether it’s deliberate or not.

This this the fifth -and last- part of my Commercial Banks Credits/Deposits Charts serie :
1-Credits : amounts and % of growth
2-Credits : explanation of the surge of credit since february
3-Deposits : split between Bangkok and other provinces
4-Deposits : amounts and type of deposits

Today, let’s have a look on the deposits by types of depositors. Who have the money in Thailand ? Individuals ? Businesses ? Government ?

(Source BOT, table FI_CB_012_S3 : All Commercial Banks’ Deposits Classified by Types of Depositors and Accounts)

First, a snapshot of april 2008.

As you can see, Individuals count for 60 % of the total deposits (outstanding, 6 651 billions THB) in april. Businesses count for 21 %.

Now, here is a chart with the evolution of the different types of deposits (demand, savings, time), amounts in billions THB, on 3 years.

Shorter timeline, with the total of deposits (billions THB) plus the % of change year on year to see the trend.

How to read ? In april, total deposits of Individuals reached 4 287 billions, that’s a 1,36 % increase compare to april 2007. Poor performances… Even negative if you count inflation…

We can clearly see the “boost” effect since february (with the government spreading money like Santa Claus).

Why those datas can be important (and difficult to read) ?

The way people manage their money (which kind of deposit and amounts) is a good indicator of their mood and personal situation.

But only the BOT has the whole picture. For instance, time deposits are for the rich individuals, a tiny minority in Thailand. And because time deposits are part of the total deposits, the total amount can be deceiving. The BOT knows of course how many individuals use time deposits…

Therefore, from my point of view, the savings are a much better indicator of the financial situation of the majority of the thai population.

But here, watch out. I said it before : we just have too many different ways to interpret the datas.

For instance : savings are going down. It can be because people struggle with higher prices, low incomes, therefore they use their savings. But it could mean the contrary : people feel confident, therefore they’re not afraid to consume (it’s the american way).

Or it can be a very bad sign of “inflation expectations” (the current big fear of the BOT ) : since you know that inflation is high, that prices are going up relentlessly, it makes no sense to save… You’re going to spend, on anything, because your money will worth less tomorrow…

On the other way : savings increase. Incomes are higher, everything is fine. Or, people are afraid of the future so they feel compelled to save more.

Voila. You see, it’s not easy.

Anyway, I will follow this Credits/Deposits serie every month, to look for trends. Particularily, the famous “inflation expectations”…

After a chart that shows the evolution of deposits at commercial banks (% of growth year on year), let’s have a look on the amounts and the type of deposits (it can give us information about people’s mood).

(Source BOT, table FI_CB_011_S2)

The BOT uses units in millions THB. I use billions THB, to ease the reading.

About the deposits, we have :
-demand (= what we can call current account)
-saving
-time deposits

How to read ? In april, the total deposits in commercial banks reached 6 955 billions THB.

On this total, 3 680 billions were time deposits, 2 842 savings, and 382 demand deposits.

What can we learn from that chart ? Unfortunately too many things.

For instance, the point in september 2005 from which time and saving deposits start to diverge. Then after we have like a rugby ball shape… Time deposits are growing, saving are declining… Until january 2007, when the tendance start to reverse (albeit slowly).

What does it mean ? As I said, we have just too many explanations. We could list a few :
-time deposits are less flexible than savings (you sign for a certain lenght of time, from 1 month to X years, if you take back your money before maturity you pay a penalty).

-people/businesses increase their time deposits when they feel they don’t need the money quickly.

-it could mean that they feel confident, income is rising, so they can save more, for the long term

-or the contrary : they’re scared about future… they want to save more, for the long term. They hoard cash.

-people are more “finance savy” and understand that interests paid on time deposits are higher than with regular saving accounts. So it could be a “fashion”. The banks are pushing time deposits toward their clients, like a financial products.

-or it could be entirely related to businesses. Economy is sound, growing, cash flows are high, so it makes sense to save… Or the companies hoard cash, because they’re afraid, they don’t want to invest because future is too uncertain.

-we could also copy the political history onto the chart. End of 2005, Thaksin start to have hard time. Beginning 2006, house dissolution, new elections, boycott by the opposition, rallyes. High tension. September 2006, Coup, Junta…

It’s really a typical set of datas from which you can extract many different (and opposite)… truths. You shall find your own.

I would like to give you my own analysis though : time deposits… are for the big players I think (companies and “rich” individuals…).

Therefore, the savings deposits are a better indicator of the population’s mood. The decline from september 2005 could be linked to the beginning of a sluggish economy. Then the coup… the Junta… then things start to get better half 2006… savings increase again.

However, let’s not forget : in may 2005, savings were at 2 743 billions… in april 2008, we were at 2 841 billions. A mere +3,5 % in 3 years ! Despite inflation. And despite many “boost policies” from the government.

I mean if we speak in real THB… we have negative growth here.

Asian people are traditionally big savers (unlike US for instance…). So from my point of view, this is not brillant.

-Unless, thai people started to mimic the americans (let’s consume all what we earn), like a switch in behaviour. Possible.

-Or, the decline of savings could be linked to the famous… “inflation expectations” (better to spend today, because tomorrow my money would buy less). This is tricky : inflation fuels… inflation.

Anyway : if you look again the chart of evolutions, the growth of total deposits in Thailand is declining.

As promised, here is the chart about deposits in commercial banks, for the whole country, Bangkok and Other provinces, from january 2006 to april 2008, % of growth year-on-year.

Deposits = current + saving + time deposits.

How to read ? In april, total deposit increased by 2,6 % compare to april 2007.

(Source BOT, table FI_CB_011_S2).

To my regular readers… you’d probably noticed that this chart is different from this one (regarding the split between Bangkok and Other provinces), even though they’re supposed to be identitical…

No, it’s not my mistake. As you may know, the BOT has totally revamped its website in may... and many of its statistical tables too !

So don’t ask me why for this table they’ve changed the perimeter of “Bangkok” and “Other Provinces”… I’ve got no idea.

It makes the reading different. On the first version, upcountry was suffering… On the new one, they are okay. It’s Bangkok that is sluggish (with negative growth since december).

However, the total remains the same : 2007 was sluggish… And since january 2008, it starts to increase again, but thanks to Other provinces.

That would make sense with the strong increase of farmers incomes and the “boost” policy from the government (a spending spree…).

A staggering chart about annual cement production by country from 2004 to 2007, in billions of metric tons. Cement is used to make concrete.

Source The Oil Drum (a fascinating source of infos about peak oil and other related energy issues).

(source of the datas, USGS)

Thailand produced in 2006 twice than France (40 000 thousand metric tons versus 21 000), and more than Germany, more than Brazil…

And China… almost HALF of the world production ! Look this ! It’s amazing. It’s bloody scary.

While working on a BOT’s table to create a chart of banks deposits, I started actually with… credit.

Because I noticed a large increase of total credit (outstanding) since february 2008 (look here).

This chart shows that the origin of this surge of credit is in Bangkok. I gave several possible explanations to this phenomenon. But it was necessary to find out more informations.

To do so, I worked on another table : “All Commercial Banks’ Credits Classified by Types of Debtors and Credits” (FI_CB_015_S3).

Type of debtors : that’s good because we can find out which entities are responsible for the increase (Businesses ? Individuals ? Government ? etc.)

Here is the result of this investigation.

The “culprit” can’t hide : “Domestic banks and Financial institutions“. This group is responsible for the hike since january. Eventhough the groups “Business” and “Government” continue to grow (”Individuals” too but at slower pace).

(to ease the reading of the chart I’ve removed groups with very small volume like “Funds” and “Non Profit Organizations”).

Here is another view, with the percentage for each group, of the total per month.

How to read ? In april, 51,4 % of the total credit (outstanding) of commercial banks were businesses. It’s declining… Same with Individuals.

Here is the same chart, but with a logarithmic view.

As you can see all the other types of debtor are marginal.

But it’s not finished. What is the group “Commercial banks and Financial Institutions” ?

The BOT gives us the details :
6. Domestic Banks and Financial Institutions
6.1 Commercial Banks Registered in Thailand
6.2 Branches of Foreign Commercial Banks
6.3 International Banking Facilities (Stand Alone)
6.4 Specialized Financial Institutions
6.5 Representative Offices
6.6 Finance Companies / Finance and Securities Companies
6.7 Securities Companies
6.8 Mutual Fund Companies
6.9 Credit Foncier Companies
6.10 Life insurance Companies
6.11 Thrift and Credit Cooperatives / Federation of Savings and Credit Cooperatives
6.12 Asset Management Companies
6.13 Pawn Shops
6.14 Other Financial Institutions

So now, we need to find the culprit INSIDE the culprit !

Crystal clear : the item “6.4 Specialized Financial Institutions” of the group “Domestic Banks and Financial Institutions” is responsible for the bulk of the increase of total credit.

Now, you’re going to ask me : what are the “Specialized Financial Institutions” ? !

(update june 19)

The official answer is :
1. Bank of Thailand
2. Government banks (Government Savings Bank, Government Housing Bank, Bank for Agriculture and Agricultural Cooperatives, Export-Import Bank of Thailand, Islamic Bank of Thailand, Small and Medium Enterprise Development Bank of Thailand)
3. Government Financial Institution (Secondary Mortgage Corporations, Small Business Credit Guarantee Corporations, Thai Assets Management Corporations)
4. Financial Institutions Development Fund (FIDF)
5. Deposit Insurance Agency

The surge is clearly linked to some action from the financial institutions linked to the government.

So to summarize (I think you need it ) :

-since february 2008 “someone” borrows more money (much more than it used to) from commercial banks.
-this “someone” is not businesses, individuals, nor government in direct (even though those groups continue to increase their loans). It’s linked to the government/financial authorities (but we don’t know the details and what this money is for).

-in april for instance, total outstanding credit increased by 174 billions THB, compare to march.
-on these 174 billions, the group “Domestic Banks and Financial Institutions” represents 109 billions (63 %)
-on these 109 billions, the item “Specialized Financial Institutions” represents 98 billions (98 %).