Inflation tsunami : + 7,6 % in may, at 10 years high

Thailand’s inflation rate soared to 7.6 per cent in May, the highest in nearly a decade, due to the unrelenting rise of oil prices.

According to the Commerce Ministry, May inflation was the highest since August 1998, prompting the Bank of Thailand to announce it would revise its economic growth and inflation rate forecast for the year. (Nation)

It’s exactly the scenario I’ve described all along (first signs last october) : the inflation tsunami.

One month ago, I’ve announced that the inflation, annual rate, would be higher than 5 %.

One month ago, the Finances Minister was saying that inflation would not go up to 5 %

End of april, the BOT continued to play the head into the sand scenario with a forecast of 4 to 5 % for 2008 (and it was a “revised” forecast from a surreal… 2,8 to 4 % !!!).

They were wrong. Or, more certainly… they lied.

They lied with the stupid “hope” that everything would be fine, would become normal again… the Big Eraser would erase all the annoying datas, the harsch reality… Check mate.

Now… what will happen ?

It’s easy : inflation will continue to increase, because it will be fueled by several secondary effects (or “spill-over effects”).

It’s economy 101. The prices controls policy has failed… the “postponement” policy will fail… the dams are going to break.

Businesses are going to increase prices of many goods and services.

Their margins have been crunched for some of them, they have waited too long, they have to increase to offset their costs.

All thoses hikes will fuel the CPI for the coming months, throughout the year.

Think about the subisidy for diesel, the fares for bus, taxis, and the prices of many commodities and raw materials… and wages of course.

The governement has already boosted the income of civil servants and employees from state companies… employees from private sector will follow.

It means that for the year the inflation could reach 7 %. Minimum. And if the oil prices stay high or continue to increase… then… you can’t make forecast anymore. 😉

[I will update the CPI chart tomorrow]

5 Responses to “Inflation tsunami : + 7,6 % in may, at 10 years high”

  1. 1 pybthai 3 June 2008 at 8:05 am

    What do you think comes next to control the runaway inflation? Can raising BOT rates actually help or do you think this inflationary number is mostly because of the inflation tsunami and wage-push inflation?

  2. 2 thaicrisis 3 June 2008 at 9:33 am

    … Oh la la la, you go too fast ! We don’t really have -yet- the wage-inflation push.

    That’s the cherry on the cake… But it will come of course, and it will after ignite several secondary effects… that will fuel further inflation.

    It’s Economy 101. But apparently, the thai gvt doesn’t agree. 😉

    As for the solutions… well in theory we could have some (but I don’t believe the thai gvt will have the political will… balls… to do it)

    -declare that the party is over : we stop the crazy run toward export, the weak THB policy. Increase interest rates, a lot. Price to be paid : economic slowdown, real estate bubble explodes, some bankrupcies… people not happy. But thanks to the recession, prices would cool off (less demand)

    -the THB could appreciate versus USD… that would alleviate the oil bill, and other imported raw materials and commodities… cooling off inflation.

    From my point of view that’s the only medecine (the US used this cure in the 80s… To kill high inflation the FED slapped huge interest rates).

    AS I said, it very unlikely that It will happen…

    We start to hear the first voices (article here tomorrow on this issue)… who call for an increase of wages and incomes !

    It’s the Zimbabwefication of the country. The easy way (short term), the politician way, the stupid way in my opinion.

    Of course, I forgot, we have another solution… the famous third way…. the people who think that the problem will simply VANISH… that oil prices will go back quickly at 50 USD per barrel… 😉

    The name of this sect is : The Hoppists. 😉

  3. 3 thaicrisis 3 June 2008 at 9:36 am

    I forgot to add something : inflation is real the economic evil.

    Inflation keeps the poors… poor. Inflation wipes out the savings of people (rich or poor).

    Inflation gives a premium to lazy people, and people in debt.

    Inflation is the enemy.

    To say that “some” inflation is good, is nothing but an intellectual fraud.

  4. 4 pybthai 4 June 2008 at 2:13 am

    Thx for the insight and suggestions, however judging from what is going on now it looks like we may have reached the point of no return and even if there was “political will”, the train is already off the tracks.

    The BOT, although there have been in my opinion alot of mis-steps in 2007, this year seems to be in somewhat of a quagmire in terms of monetary policy.

    Looks though that the BOT would be in a better position if they act at their next policy meeting rather than destabilizing the situation with big rate increases later on.

  5. 5 thaicrisis 4 June 2008 at 2:24 am

    To be fair, it’s not only the BOT that is in this uncomfortable position…

    Virtually, all central banks in the world face the same dilemna.

    The ECB for instance, with the “hawk” Trichet. It’s a joke : inflation is already -and since many months- beyond what they call their line of “comfort” (2 %).

    And the biggest liar : the FED of course.
    Last night Bernanke said it was worried about inflation (at last !) and the value of USD (at last too !).
    Immediatly the markets assumed that the FED will increase its rates… Really ? Show us the money !

    If the FED increase rates, we can say bye bye for the remaining real estate market in the US and all the rotten debts of the US financial institutions.

    The name of the game, since too long, is the Liar’s poker.

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Thailand Crisis

Coup, Economic slowdown, Terror In the South... The situation is worsening in Thailand. Bumpy road like often before.

But this time, it's different.

The key to understand the present turmoil is the inevitable... succession of King Bhumibol.

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