Inflation tsunami : manufacturers ask for higher prices for 1439 products

Consumers must brace themselves for another extensive round of price increases, as the Commerce Ministry has been inundated with applications from manufacturers for higher retail prices.

Nation say “inundated“… I talk about “inflation tsunami“. It’s the same.

While we entertain the plebs with a subsidy on diesel (starts today at midnight and for 6 months)… with lese-majeste, with nationalist hysteria… the inflation tsunami is building its forces, quietly.

The ministry has received price-increase applications from 73 producers of consumer goods covering 1,439 items in 19 categories. All are seeking compensation for massive rises in production costs brought about by skyrocketing oil prices and escalating raw-material costs.

-The ministry’s Price Consideration Committee has already allowed an increase of Bt5.50 per litre bottle of palm and soybean cooking oil, with retail prices rising from Bt47.50 to Bt52 and Bt49.50 to Bt55, respectively.

-Steelmakers are seeking a hike in the price of steel rod from Bt38,405 a tonne to Bt42,950 and for steel sheet from Bt39,000 a tonne to Bt48,250.

-Condensed-milk producers want a 230-gram can to go up from Bt23 to Bt34 and fresh-milk suppliers want Bt11 for a 250cc carton instead of the present Bt9.50.

-Fertiliser producers want the retail price range for different formulas to rise from between Bt10,160 and Bt20,050 per tonne to between Bt14,200 and Bt32,800.

-Animal-feed producers want chicken feed to rise from Bt436 per 30-kilogram bag to Bt532 and pig feed to go up from Bt364 a bag to Bt489.

Other food and consumer products in the price-rise queue include canned fish, powdered and processed coffee, rice vermicelli, processed food, pesticide, rubber tyres, car batteries, detergents and cement.

Under the ministry’s price-control measures, it will first ask producers to maintain current retail prices as long as possible. However, goods that rely on imported raw materials, which have seen rising costs, will be granted increases based on reasonable prices and correct timing.

Following the Zimbabwe bias, the government will do whatever it takes to delay those prices hikes. Some. But, eventually, the dam will break.

Businesses just can’t postpone their costs adjustments indefinitely, crushing their margins, to please the thai authorities… It’s just impossible.

It’s enough to look at the chart of Price Producer Index (+18,6 % in june, year on year) to see that businesses face pressure.

It’s check bill time now.

At that point, 3 solutions :
-you think that suddenly, costs (oil, raw materials etc.) will go down on a massive scale. Problem solved. inflation vanishes.

-you think that the solution is to continue the price controls policy and to declare inflation… illegal. Or to give 1 billion THB to everybody (kids too)… 😉 Zimbabwe tried. Not very successfully.
To paraphrase Churchill, they eventually got both : hyperinflation and dishonor.

-or you have some common sense, and you prepare yourself for an inflation rate on 2 digits for the coming months.

8 Responses to “Inflation tsunami : manufacturers ask for higher prices for 1439 products”

  1. 1 MSB 24 July 2008 at 10:33 am

    Have you looked at real interest rates here? About -4% right now (BIBOR 4% – CPI 8%), negative real interest rates tend to stimulate loan growth in most cases, which ideally will help the domestic economy. As higher interest rates are expected going forward we could see a pick up in domestic demand as consumers try to lock in low rates for autos and maybe even properties. Household balance sheets are not fully leveraged yet, so that could prompt borrowing. The low rates should also encourage corporates that require high capex to invest now rather than later – energy, cement etc. THis should give some impetus to the local economy. This did give corporations a boost earlier this year, and perhaps increased borrowing might be the key to this.

  2. 2 ThaiCrisis 24 July 2008 at 11:36 am

    Forget it MSB… we have negative real interest rates since… long time. It’s not new.

    It certainly gave a cushion , created a few bubbles too along… Basically : they just bought time.

    You think too much by “the book”.

    You look at negative real interest rates… and you infer that businesses will invest… It’s wrong. Investments are down.
    It’s a trend that we had since the coup, 2 years ago.

    The gvt is firing its last bullets : free money for a short period of time, calling for the “rebound” that fails to materialize. From a “boost” rethoric we have switched toward a “life jacket” theory.

    It’s the end of the road. But make no mistake : Thailand is not alone.
    I’ve just looked a the latest datas today from Europe, Germany, France etc. It’s just horrible. June seems to have been a “rupture” point (for consumption, retail sales, industrial activity and even services).

    As for the “household balance sheets not fully leveraged”… go talk about it with the low income and even middle income families, confronted to a running inflation, and debts.

    This kind of expression just doesn’t apply in Thailand… 😉

    to read
    German Confidence Dives, European Services Shrink as Recession Risk Grows

    France: l’activité au plus bas depuis plus de six ans en juillet

  3. 3 Thai OutsideIn 24 July 2008 at 6:29 pm

    I would not be overly worried about inflation. A few thoughts:

    – CPI in 2008 is actually lower than many regional oil importing peers (lower than Singapore/ Korea/ Indonesia/ Philippines). Our 2008 CPI will not be 8% (8.9% in June is the highest monthly figure, much lower than, say, 25% in Vietnam). Year-end CPI is projected to be more around 4-6% (high, will hit families, but manageable and could be much worse)
    – Key driver of recent CPI rise is our high reliance on energy imports. Remember oil prices doubled in the past year and our CPI has remained mid-single digit on avg. The rate of increase in global oil price cannot go on forever.
    – Global soft and hard commodities prices will (and have already) slowed.
    – Bank of Thailand seems to be willing to prioritize price stability over growth by its recent decision to increase interest rate, despite friction with MOF.

  4. 4 Thai OutsideIn 24 July 2008 at 6:37 pm

    Btw, I don’t think “it’s the end of the road”

    Thai economy is actually quite robust this year, given what is happening in the world today.

    First half real growth is 5.9%. Exports rose 27% June 08. We have current account surplus. Investments and FDIs are obviously down with politics and global economy, but by less than one would expect.

    The freeing up money “6 measures” policies is just another populist “quick win” policy.

  5. 5 ThaiCrisis 25 July 2008 at 12:23 am

    I don’t agree.

    I wrote many times that to compare inflation rate with other countries is a fraud :

    -1- the composition of the “basket”, the items and their weight into the CPI, are DIFFERENT.
    One example : food = around 36 % in Thailand.

    But only 14,9 % in the US.
    So ?

    -2- you forget the… prices controls policy ! For that matter, inflation rate in Thailand should BE MUCH HIGHER.

    -3- the idea that oil is the only culprit in inflation is a fallacy.
    What about the raw materials ? The chinese have agreed to pay for 2008 iron ore 80 to 97 % percent more than the previous year… !!! Why ? Because they need to make more steel. Demand. Period.

    Surely, we had some excess and speculation… but the key word of the inflation problem is demand.
    So at that point, do you believe that demand will go down a lot, soon ?
    It might. But it might not. In Thailand, we continue to break record after record for car exports… Building of new condos decreased ONLY 1 percent on the first semester

    -4- to think that companies can adjust, overnight, their prices downard following a decline in crude oil prices doesn’t make any sense.Prices will continue to increase until the end of the year.

    And then, the gvt will stop some subsidies, that will fuel even more inflation.

    -5- If the economy is so sound, why the gvt create many “boost” packages ?
    Growth, and exports growth are bullshit.
    I showed it with the deflator issue on Q1.

    And export… yeah great…. Japanese cars makers make a killing. How much taxes they pay (BOI, taxes privileges etc.) ? The only direct benefit for the most people is certainly the agro exports. But again, agro exports are only 20 per cent of the total.

    On the ground, small businesses suffer a lot, dissolutions increase.

    It’s normal, they suffer first… The large companies will follow with a time lag.

    -5- okay with the populist quick win policy. But it has a real impact and a real cost ! It totally distorts the market. And it’s strange, nobody is talking about it… what do we do in 6 months ? Continue the tax cuts ?

  6. 6 tom_bkk 25 July 2008 at 12:58 am

    I will ask Grandma for advise, she witnessed 1923 in Weimar and told me, money is cheaper than toilett paper …

  7. 7 chinesethai 25 July 2008 at 1:06 am

    The poor, who surely do not have opportunity to take part in our discussion here, are suffering most and badly. The economy only looks robust to us (foreigners and upper-middleclass Thais). Imagine if, like most of the poor in big cities, you earn only Bht 10,000 a month but need to pay for 3,600(transportation), 4,500(food) and 1,000(shared apartment) in a month. This is just a very conservation estimate for a single. So there is no more room to cut back. What about a family with a new-born kid?

  8. 8 ThaiCrisis 25 July 2008 at 2:13 am

    Indeed, we have real “luxury” debates here, far, far away from the day to day life of most of the thai people.

    On my side, I can only add pieces of datas together (average wage, look here, inflation rate, and other indicators, plus my basic observations on the ground). And I find the result appalling.

    This is why is wrote that reading the economic situation by looking only at “exports figures” (and make no mistake Thailand’s GDP is holding only with exports) makes poor sense.

    I honestly don’t know how people make it.

    But, in a way, why it should concern us, could ask the cynics ? Well, I’ve got a very basic theory : when “most” of the people just can’t make it anymore, then you open the Pandora Box of social unrests, politicial crisis and/or adventures.

    When “most” of the people just can’t make it, they are ready to listen to any kind of lunatic politicians… This what history shows us, over and over.

    The hysteria about Preah Vihear Temple is an illustration.

    But like everytime, many analysists rely only on the assumption that this time it’s different.

    They apply this principle to all kind of issues : economic and political as well.

    We seriously lack of humbleness.

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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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