Inflation bothers you ? Change the way you calculate it

The temperature bothers you ? Just break the thermometer, it will do the trick ! More non-sense and Zimbabwe policies are about to come from the Commerce Minister.

The Commerce Ministry will adjust the inflation-calculation system by giving more weight to alternative energy in order to reflect the real costs of daily spending as consumers turn more to alternative fuels. This will help relieve inflation due to relatively lower prices of alternative fuel.

Oil prices account for 11.54 per cent of 373 products in the ministry’s calculation basket. In 2002, the weight was only 5.3 per cent. Despite higher consumption, alternative energy sources such as liquefied petroleum gas (LPG) and natural gas for vehicles (NGV) have a weight of less than 4 per cent in the basket.

This will help relieve inflation“. Unbelievable. What a totally twisted logic !

LPG/CNG/biofuels are cheaper than diesel/gasoline. So let’s increase their weight within the index… so it will leverage the decrease ! Therefore inflation rate will decrease. Magic.

Even though it’s going up, the consumption of alternative fuels remains small compare to gasoline/diesel.

[click here to display the composition of the basket]

Siripol said the ministry would also cooperate with other government agencies to control 373 product items in its inflation calculation. For instance, the Interior Ministry could increase efficiency on the control of rental costs as these are a major factor in consumers’ daily expenses. The ministry will apply this measure to other products such as student uniforms, telephone fees and accommodation. (Nation)

Sure. Let’s cap more prices (for instance… rentals !)… it will improve the situation.

The Internal Trade Department was ordered to add the two products [LPG and NGV] into the basket of 373 existing products which is used to determine the consumer price index (CPI) which gauges inflation. The calculation would start next month.” (Bangkok Post)

3 Responses to “Inflation bothers you ? Change the way you calculate it”

  1. 1 MSB 21 July 2008 at 11:01 am

    Inflation will likely peak Aug/Sept this year then decline, assuming oil stays below 150. Ok I admit thats a bit IF..

    But the inflation thailand (and other lets not forget) it not due to a classic domestic demand bubble of easy credit. Hence no housing crisis here as in usa and (to come) in the UK. So in H1 this year we saw “one off” food price hikes that are unlikely to be repeated. Also given the statistical base effect its highly probable inflation will not be the problem a lot of the press is making it out to be. Another 25 bips hike will probably be enough and Thai stocks will start to look attractive to LT value investors.

  2. 2 ThaiCrisis 21 July 2008 at 12:17 pm

    I don’t agree.

    -I’ve showed many times that some powerful under the surface effects will fuel inflation rate, through out the whole year.
    PPI at +18,6 per cent in june for instance and rising, prices controls etc…

    -do not underestimate the prices controls policy. The sugar prices were up 37 per cent, in one time. Many manufacturers are waiting authorization to increase their prices… Like for instance soft drinks companies… And when they will receive it, hikes will be massive in percentage.

    -a slowing growth of the inflation rate does not mean that prices are going down ! It’s a common mistake in the medias where stupid journalists (and analysist) say “hurrah inflation rate is now 7 percent against 7,5 per cent last month, holly god we are saved, inflation is not a problem anymore”.
    As you said : base effect.

    -the food prices hikes in H1 might indeed diseappear on H2, but they will probably be compensated by other items : services and goods.
    Do not forget that food and beverage weight only 36 per cent in basket for CPI.

    -the “feel good 6 months” policy of the gvt will gives a super boost to the inflation rate… next february when indeed base effect would have reduced the inflation rate…

    -I agree that the current inflation might not be “classic”. But let’s not forget that eventually… it’s indeed a matter of demand.
    If people would stop buying condos, building factories etc… demand of steel would remain flat and the surge of steel prices would not affect the economy.
    If nobody wants a certain good, its price can’t go up.

    -the only way to kill inflation is to kill demand. We need a recession, we need a large deflation of assets prices.

    -it’s politically not sustainable for sure, and this is precisely why the problem is going to be compounded by the politicians.

    Until one foot into the grave, they will continue to call for more “stimulus”, more credit, more debt, more cheap money and low interests rates, more consumption etc.

    -at that point, I do not critize Thailand anymore. The US and virtually all the countries in the world are singing exactly the same song.

    -It’s suicidal.

  1. 1 BKK News Feed Archive - Q2/08 Trackback on 23 July 2008 at 6:41 am

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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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