Chart, inflation : CPI at 6 % and PPI at 19,4 % in september

Consumer Price Index and Producer Price Index reports for september have been published (source Bureau of Trade and Economic Indices).

Growth of CPI (Consumer Price Index) reaches +6 % (year-on-year = compared to september 2007), against 6,4 % in august, and 9,2% in july.

(To understand the fall between july and august, you have to read this article… This drop is partly artificial.)

PPI (Producer Price Index) are still very high at +19,4 %. It means businesses are still facing pressures on their costs.

Now, I can hear the suckers : “You see 6% versus 6,4 %, inflation went down between august and september !”.

Nope. We have a decrease in % but… an increase in points (from 124,2 to 124,5). 😉 How come ? Base effect that’s all.

But of course the suckers (and the journalists) look only at the %, like the chinese proverb : When a finger points to the moon, the imbecile looks at the finger. 😉

Here is a chart with both values.

So let’s summarize :

-the feel good operation from the government started end of july (free water, free electricity, tax cuts on diesel etc.). It will end in january.

-the powerful (and real) effect of the decrease of oil prices on the CPI… is already BEHIND us… It’s unlikely that oil prices will fall further… Therefore, we have already eated our white bred… This card won’t have an effect anymore on the CPI for the coming months.

-meanwhile, some prices will continue to raise, because the PPI are still very high (every month, companies have to give up the fight, and have to increase their own prices, they can’t postpone anymore). This will fuel the CPI for the coming months.

looking at the details of the CPI report we see that “food and beverages” is up 15,7 % compared to september 2007 ! And up 1,7 % compared to august 2008. This inflation is broadly felt by the population, for obvious reasons… And reduces the purchasing power.

-but because of the base effect (comparison year-on-year), the % of change of the CPI could continue to go down (for instance with the same index reading at 124,5 points in october, the % of change would be +5,2 %).

-the only factor that could cool off the CPI seriously is a severe slowdown (exports for instance are going to slow down, that could fuel prices decreases). We’ll see.

-last point : let’s not forget the exchange rate issue… If the THB is going down versus USD and EUR, we are going to import inflation.

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