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Inflation poses biggest challenge to economic recovery


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By Thai PBS World’s Business Desk

 

Low-income groups and small businesses are now getting squeezed by high inflation and potential interest rate hikes. The situation may make it necessary for the government to continue its support for vulnerable groups.

 

People are complaining that banks have tightened mortgages ahead of an impending central bank rate hike. Many banks have abandoned fixed-rate mortgages, while others are preparing to hike their rate if the Bank of Thailand (BOT) raises its benchmark rate in August.

 

The BOT recently signaled that the risk of an economic downturn has been substantially reduced but the risk of high inflation has increased steadily. Therefore, the BOT was likely to slow down its monetary expansion, which had resulted in the interest rate being pegged at the current historic low of 0.5 percent.

 

Inflation measured by the consumer price index rose 7.1 percent in May, a 13-year high.

 

High inflation will have a more severe impact on people’s welfare than a one percentage point rate hike, according to senior officials at the BOT, who recently met with market analysts for a policy dialogue aiming to ensure the market understands what the central bank is doing and what it intends to do.

 

Full story: https://www.thaipbsworld.com/inflation-poses-biggest-challenge-to-economic-recovery/

 

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-- © Copyright Thai PBS 2022-07-02
 

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Will raising interest rates raise the Baht as well?  That would also slow the economy, and wouldn’t do much for Thailand’s beleaguered tourist industry.

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As so many poor Thais have borrowed indiscriminately, they will be hit hard by high interest rates that will be needed to fight inflation.

I am not sure if Prayuth or his economic team understand inflation, or know how to combat it.  Bad news for Thailand and Thais.

If wages, productivity, and pensions do not keep up with inflation, trouble ahead.  particularly for Bloated stat enterprises with huge pension liabilities.

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Posted (edited)

Indeed, Thailand is in the same group as pretty much every other country in the world.

 

Anyone who has taken a loan for a car or mortgage in the last few years that could just about afford the repayments is going to endure a lot of discomfort over the coming years.

 

We were all encouraged to borrow with rates very low, now unfortunately things can only go one way, up.

 

Edited by ed strong
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Unfortunately they have sat on their BOT and just fiddled as the chickens come home to roost 🤔

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5 hours ago, ed strong said:

Indeed, Thailand is in the same group as pretty much every other country in the world.

 

Anyone who has taken a loan for a car or mortgage in the last few years that could just about afford the repayments is going to endure a lot of discomfort over the coming years.

 

We were all encouraged to borrow with rates very low, now unfortunately things can only go one way, up.

 

Actually, the one good thing about high inflation is that debts contracted at lower rates are much easier to pay off. Provided, of course, that the loans have fixed rates.

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Posted (edited)
16 hours ago, mommysboy said:

Well it will do if salaries do not keep pace. 

Yes of course this is true, to a point

 

Notice in America how the unions drove up wages

It was like a dog chasing its tail

Union drives up minimum wage

Companies increased expense meant raising prices

Did the employees go anywhere? No not really but everything got more expensive for everyone

 

It is a tough nut to crack, Of course if inflation rate is 3% & salary/minimum wages don't increase it is felt especially by the lower wage earners

 

But at the same time as said above America & other western countries raised wages to a point most foreigners moving to places like

Thailand went there to get away from the price increasing madness. If Thailand keeps raising minimum wages it will do exactly the same thing & become the same as the USA/Europe because of course taxes will rise too

 

But again tough nut to crack because yes we cannot leave the lower income folks behind & say hey just live on your 2-300 baht a day wages

 

Sadly Thailand least of all has a government fit to sort this out

Edited by mania
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15 hours ago, Isaan sailor said:

Will raising interest rates raise the Baht as well?  That would also slow the economy, and wouldn’t do much for Thailand’s beleaguered tourist industry.

If the Baht rises it will possibly put off the lower end cheap charlies from coming, but most tourists who have saved funds for a holiday will have budgeted to spend for a fortnight or so and will continue to travel.

The biggest issue would be inflation driving up flight costs, so people may stop looking at long haul destinations and look for something closer to home.

 

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Posted (edited)
2 hours ago, mania said:

Yes of course this is true, to a point

 

Notice in America how the unions drove up wages

It was like a dog chasing its tail

Union drives up minimum wage

Companies increased expense meant raising prices

Did the employees go anywhere? No not really but everything got more expensive for everyone

 

It is a tough nut to crack, Of course if inflation rate is 3% & salary/minimum wages don't increase it is felt especially by the lower wage earners

 

But at the same time as said above America & other western countries raised wages to a point most foreigners moving to places like

Thailand went there to get away from the price increasing madness. If Thailand keeps raising minimum wages it will do exactly the same thing & become the same as the USA/Europe because of course taxes will rise too

 

But again tough nut to crack because yes we cannot leave the lower income folks behind & say hey just live on your 2-300 baht a day wages

 

Sadly Thailand least of all has a government fit to sort this out

Saw an add yesterday in one of my media streams from a place I used to frequent in California, Folsom. Taco Loco, front end of house $25 to $40 an hour........if you worked 40 hours a week you would make 4k a month before taxes and tips at rhe low end, 6k at the top.....

 

Now you know why so many want to go to the US...unfortunately they don't realize the actual cost of living such as rent etc...

Edited by ThailandRyan
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My main UK based pension is CPI linked so I'm expecting that to keep pace with Thai inflation, albeit with a one year time lag, so long as sterling stays relatively stable. My big worry, given geoplolitical developments (which I won't go into here), is that sterling may tank, and I mean really tank. Given the CPI time lag a significant drop, say 30-50% or more, is going to give me real problems (and I'm not sure whether the CPI thing would even be maintained should we enter a super high inflation environment),

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Central banks live in the paradigm that raising interest rates cautiously will lower inflation. Just a few months ago Fed’s chief said inflation was transitory. Recently he admitted it was not. So the old paradigm is now broken. They have no room to raise rates because economy has seen the worst crash in the first half of 2022 since many decades, and this is under almost zero rates. Raising rates will bring economy to a screeching halt. They will start pumping more money into the system to keep it on life support before year ends, they have no other choice. Which means a prolonged period of high inflation, years as the 1970s era is a good indication. There are forecasts of oil going to $380 this year.

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16 hours ago, hotchilli said:

If the Baht rises it will possibly put off the lower end cheap charlies from coming, but most tourists who have saved funds for a holiday will have budgeted to spend for a fortnight or so and will continue to travel.

The biggest issue would be inflation driving up flight costs, so people may stop looking at long haul destinations and look for something closer to home.

 

Maybe, but I'm willing to bet that many in the UK for example certainly didn't budget for 100% increases in energy bills, as well as hefty price rises on food and petrol, ie, much less discretionary spending. It's not just the UK too.

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18 hours ago, mania said:

Yes of course this is true, to a point

 

Notice in America how the unions drove up wages

It was like a dog chasing its tail

Union drives up minimum wage

Companies increased expense meant raising prices

Did the employees go anywhere? No not really but everything got more expensive for everyone

 

It is a tough nut to crack, Of course if inflation rate is 3% & salary/minimum wages don't increase it is felt especially by the lower wage earners

 

But at the same time as said above America & other western countries raised wages to a point most foreigners moving to places like

Thailand went there to get away from the price increasing madness. If Thailand keeps raising minimum wages it will do exactly the same thing & become the same as the USA/Europe because of course taxes will rise too

 

But again tough nut to crack because yes we cannot leave the lower income folks behind & say hey just live on your 2-300 baht a day wages

 

Sadly Thailand least of all has a government fit to sort this out

Wages are a large cost of course.  But there are a lot of other factors of production too.  Why focus on the workers all the time?  Don't be fooled. Also why do you think workers want higher wages in the first place?  I'd look for greed further up the chain.

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Posted (edited)
3 hours ago, mommysboy said:

  Don't be fooled. Also why do you think workers want higher wages in the first place? 

I agree but as I said it turns into a dog chasing its tail

Yes they want higher wages as prices rise.

Companies in turn pay higher wages & raise prices of products to keep profit margin & investors happy

 

Something more is broken & needs fixing

it is neither the top/owners (who risked capital & created jobs & now want profit)

nor the bottom/workers (who works hard to help create profit for the top)

 

Edited by mania
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4 hours ago, mommysboy said:

Maybe, but I'm willing to bet that many in the UK for example certainly didn't budget for 100% increases in energy bills, as well as hefty price rises on food and petrol, ie, much less discretionary spending. It's not just the UK too.

The people who have the funds will continue to go where they want to in the world.

However the budget holidaymaker who likes sun sea & fun for a fortnight, might not travel around the world for it and come to Thailand any more, and possibly choose a cheaper Mediterranean destination.

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9 hours ago, mania said:

I agree but as I said it turns into a dog chasing its tail

Yes they want higher wages as prices rise.

Companies in turn pay higher wages & raise prices of products to keep profit margin & investors happy

 

Something more is broken & needs fixing

it is neither the top/owners (who risked capital & created jobs & now want profit)

nor the bottom/workers (who works hard to help create profit for the top)

 

In one word : debt.

 

I've nothing against profit, or talented people being paid more, but it's become more, more, more. The pay gap is widening to obscene levels.

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Posted (edited)
On 7/2/2022 at 8:20 PM, ed strong said:

Indeed, Thailand is in the same group as pretty much every other country in the world.

 

Anyone who has taken a loan for a car or mortgage in the last few years that could just about afford the repayments is going to endure a lot of discomfort over the coming years.

 

We were all encouraged to borrow with rates very low, now unfortunately things can only go one way, up.

 

Nah, if anything, carrying a lot of debt during hyper inflation is a great position to be in, assuming you can make the payments. The people that will hurt the most are those holding cash, or nothing at all.

Edited by Metapod
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