Other people start to share the “inflation tsunami” idea

… At least (and at last) in the main stream medias.

I just want to show that I’m not the only lunatic to speak about the risks of “inflation tsunami” in Thailand. 😉

The idea is very basic : higher prices spread from raw materials, commodities, to intermediary goods, then to finished goods… businesses margins start to be under severe pressure… at one point (but the process is slow)… they can’t take it anymore, they increase their own prices… even for services. It increases the pressure on the people… Who start to demand higher wages… etc.

Spillovers effects, secondary effects or just “vicious circle”, you name it.

On top of this picture, that is easy to understand, we have to add other factors that worsen -a lot- the problem  :

-subsidies (fuels, etc.) : very bad because it prevents people from taking rational decisions (“honey ! Let’s buy a car ! Okay”). They live in a virtual reality. And subsidies… always cost. Someone, eventually, has to pay.

-controls and capped prices : it creates a dam… working great. But at one point the dam can break… leading all the actors to increase their prices simultaneously, creating an even greater inflation shock.

-“stimulus packages” and other “government expenditures” and budget deficit : the state tries to substitude itself to weak private investments… by throwing money around. Efficiency ? Close to zero. The thai state can’t be efficient.

-cheap money, cheap debt : for too long, the BOT (central bank) has kept negative real interest rates (look at the chart). It’s a total distorsion of the market and a total anomaly on such long period of time.
Too much free money or cheap money chasing too many cheap ideas of investments, or worse… non productive investments.

-weak currency : In 2006, 2007, the BOT has done everything to… weaken the THB versus USD, in order to “boost” the exports. This system created a lot liquidities on the market (BOT was buying USD, exchanging USD for THB) and then issuing bonds to try to mop up thoses liquidities. The bonds are short term : 1 year). And this system increased of course the imported… inflation.

-the last factor (with no thai responsability) : the black swan. Oil prices of course.  in may 2007, barrel = 63 USD… One year later = 130 USD. And counting.

Mix all those points… and you get a very bitter potion. And probably even poisonous.

There is no point to try to deny it : the inflation tsunami is on the move.

Raging inflation could be worse next year and stay in double-digit territory as businesses would be under pressure to adjust costs and raise prices after they have depleted their inventories, a leading economist warned yesterday.

Virabongsa Ramangkura, a former deputy prime minister, said that even if oil prices stay at US$120 (Bt4,000) to $150 per barrel next year, inflation will continue to rise into double figures.

“I believe that inflation will continue to rise and it will stay at the double-digit figure next year. This year it might touch 10 per cent or slightly more. But next year it will rise even further as businesses have to adjust their costs after using up their inventories,” he said.

The inflationary pressure is compelling many businesses to embark on drastic restructuring of their operations to cope with the high-cost environment. (Nation)

6 Responses to “Other people start to share the “inflation tsunami” idea”

  1. 1 fall 3 July 2008 at 12:35 pm

    I’m not the only lunatic
    Actually, I agree with the inflation tsunami idea. It’s unavoidable, fueling by international and domestic factors.

    But since u r doing so well preaching, there’s no need for another preacher.

  2. 2 ThaiCrisis 3 July 2008 at 1:42 pm

    Fair enough Fall. So, that’s great, we are 3 then. At least.

    A looooooong way to go, still.

  3. 3 pattayaghost 9 July 2008 at 4:09 am

    With much respect and appreciation for helping me articulate my thoughts, TC, I have joined the chourus of people proclaiming the tsunami is upon us:


  4. 4 Mark Allen 10 July 2008 at 10:16 am

    To all those people that sold all their dollars, this inflation in the emerging countries could wipe out your money in these emerging economies. The dollar might start to go up at some point, similar to the British Pound’s turn around in the early 1980s. Inflation has a thirty year cycle. 1910s, 1940s, 1970s, 2000s! It should all diminish after 2011 or so.

    The Thai government, as well as the American government, can’t do anything to stop it.

    Raising interest rates can kill off the economy, but won’t stop the inflation unless the other country’s all raise their rates at the same time. The Thai government will not survive this. The coup was not necessary, the TRT party would have been destroyed if the PAD had just waited patiently a couple more years.

  5. 5 ThaiCrisis 12 July 2008 at 7:54 pm

    I share your views about interest rates… Basically, it’s a checkmate situation.

    However, be carefull with your “cyclical” views about currencies and inflation.

    The USD is toasted. Yesterday (serious debasement started in the 70’s when link to gold was cut). Today. And tomorrow.

    I mean… look at what happened this friday in the US (Fannie, IndyMac …).

    The FED can’t increase rates. They have only one remaining tool (and It won’t work) : printing presses.

    The USD can’t resist this.

  1. 1 Thailand’s Coming ‘Inflation Tsunami’ Threatens to Wash Away Decade of Growth | Bangkok Diaries Trackback on 20 July 2008 at 3:39 pm

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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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