Top Thai Bankers Worry About Inflation Hike

[george]

Top Thai bankers worry about inflation hike

BANGKOK: -- The Thai government's decision to raise allowances for living expenses for state officials may fuel inflation rates, according to a top banker.

Kasikornbank president Prasarn Trairattanaworakul said the government's move to raise the cost of living allowance by 6 per cent could help ease rising expenses for state officials, but he remained concerned that it would make the inflation rate increase further until the second quarter of this year.

Regarding the interest trend, he believed the policy interest rate and interest rates offered by commercial banks would stay unchanged until the year-end although the money market is rather volatile now.

Mr. Prasarn said the bank was not worried about an increase in non-performing loans (NPLs) incurred in the credit card and consumer loan businesses since it had not extended the loan in a large amount.

Also, the bank had already improved lending procedures to ensure loans are extended more carefully.

"We have extended non-collateral loans only in small amounts. We focus on extending housing loans, because they are secured with collateral," he said.

-- TNA 2008-05-15

[george]

World Bank economist warns of impact of inflation on low-income people

BANGKOK: -- Surging inflation rates will have an impact on low-income people's spending and consumption of their households, according to a World Bank (WB) economist.

Kirida Bhaopichitr, World Bank economist for Thailand, said the surge in global oil prices to a record high of US$127 per barrel should be of concern.

In particular, it could fuel rising production and transport costs in many countries including Thailand.

She conceded that oil imports had not yet put Thailand's current account balance into deficit, but cautioned that the country could yet be impacted.

Should the overhead costs of entrepreneurs and exporters increase in the future, it would definitely affect the country's exports and current account balance.

Ms. Kirida said that rising oil prices would accelerate rising Thailand's inflation.

At present, inflation rates worldwide and as well as in Thailand had not yet peaked, but are likely to become saturated within this year.

It is projected the general inflation rate in Thailand would exceed 5 per cent this year because oil and food prices are likely to continue to stay high.

She said the current inflation rate, which stays at more than 5 per cent, would affect spending and consumption by low-income people and their households.

Because of this, the Thai government should prepare proper measures to help low-income people in the same manner as Indonesia and China have done.

The WB economist said she believed the Bank of Thailand would be able to weigh whether it would focus on economic growth or the inflation control in an implementation of the monetary policy.

Although the headline inflation rate is still below 3.5 per cent now, she said, the central bank should

take into account the surging inflation rates because they had fueled people's cost of living.

--TNA 2008-05-15

[BEENTHEREDONETHAT]

On one hand the government says there is only 3.5% inflation yet on the other hand it gives a 6% cost of living allowance to state officials. So they obviously don't believe the numbers they publish either.

Needless to say they are talking "core" inflation which does not include fuel or food. What is important is the cost of a new TV or a car or even a house, little thing like food and fuel are not important and would foul up the inflation rate.

Do you think anyone really believes 3.5% inflation?

[johnwills]

On one hand the government says there is only 3.5% inflation yet on the other hand it gives a 6% cost of living allowance to state officials. So they obviously don't believe the numbers they publish either.

Needless to say they are talking "core" inflation which does not include fuel or food. What is important is the cost of a new TV or a car or even a house, little thing like food and fuel are not important and would foul up the inflation rate.

Do you think anyone really believes 3.5% inflation?

As much as the British people believe the Uk Government on our inflation figures, in other words NO.

[Old Man River]

On one hand the government says there is only 3.5% inflation yet on the other hand it gives a 6% cost of living allowance to state officials. So they obviously don't believe the numbers they publish either.

As of April 2008, the BOT lists core inflation as 2.1%, not 3.5%. It does see the possibility of core inflation fluctuating in a range up to 3.5% during the year.

The BOT currently lists headline inflation (includes food and energy) at 6.2%. For households, headline inflation is more applicable as it more closely reflects a person's cost of living, while central banks prefer to use core inflation as it is less volatile.

[astral]

Time to increase interest rates and curb spending?

[Old Man River]

Time to increase interest rates and curb spending?

Normally yes. However, the PPP is much more concerned with political issues than economic issues and mega projects sound good and an appreciating THB/USD that could result with rate rises (attracting hot money) sounds horrible.

The PPP has no intention of making hard economic decisions regardless of what they are advised. It doesn't look good.

[A_Traveller]

The chart here of USD THB is worth a look too.

Regards

[Seneque]

Rice and oil are going through the roof and this doesn't have any impact on infaltion .... How could you ever believe the numbers the BOT is distibuting to who wants to listen ... just look around and see how people are struggling, i don't need numbers.

Government help themselves first and the population ... never (they already casted their votes)

The baht strarts sliding (pleae don't tell me the dollar is stronger ... it's a hiccup, the trend is down, way down) and the total lack of economic knowledge from this government will be felt sooner than later.

[Martin]

"The PPP has no intention of making hard economic decisions regardless of what they are advised. It doesn't look good. "

The upshot of not making those hard economic decisions By you is that those hard economic decisions are made FOR you, by circumstances soon after. And they come harder, then.

The fact is that failure to deal with reality soon causes reality to deal with you.

In this case, the reality is that it has been (relatively) easy for the past 200 years to live by 'spending' easily-won deposits from within Earth.

But more deposits are getting harder and harder to find, and to exploit once they are found.

It is not just oil, it is all the other fuels, too. And the ores.

Since it is socio-politically 'unsustainable' to get people to cut back on consumption by cutting salaries and wages, Governments (world wide) can only do it by printing more money and so getting their currency to 'weaken' so that inflation does the job.

Tough, tough, tough times lie ahead for those who cannot 'downsize' their lifestyles.

They'll be particularly tough for those who have debt to service.

(From what is said in this report, the people of Thailand may not have it quite as tough as some of the Western nations.

It looks as if the UK electorate is waking up to the economic mess that Chancellor-now-PM Gordon Brown has led them into.)

[Old Man River]

Rice and oil are going through the roof and this doesn't have any impact on infaltion .... How could you ever believe the numbers the BOT is distibuting to who wants to listen ... just look around and see how people are struggling, i don't need numbers.

Government help themselves first and the population ... never (they already casted their votes)

The BOT is agreeing with you. If you say that people should not believe what the BOT is saying, then you are saying that people should not believe what you are saying.

Check their website. They are openly saying that core inflation is 2.1% BUT headline inflation (what you are talking about) is 6.2%!

[cclub75]

On one hand the government says there is only 3.5% inflation yet on the other hand it gives a 6% cost of living allowance to state officials. So they obviously don't believe the numbers they publish either.

Needless to say they are talking "core" inflation which does not include fuel or food. What is important is the cost of a new TV or a car or even a house, little thing like food and fuel are not important and would foul up the inflation rate.

Do you think anyone really believes 3.5% inflation?

Check the figures.

We don't have 3,5. But 6,2 % in april year on year (CPI, headline). And these are official datas.

http://thaicrisis.wordpress.com/2008/05/08...at-62-in-april/

3,5 % was the (old) forecast for 2008 (whole year). The new official forecast is 5/5,5 % for 2008. But there is a serious risk that CPI will be higher.

[of course, it's perfectly useless to look at Core CPI... ]

Edited May 15, 2008 by cclub75

[Old Man River]

Just for the record, since people constantly confuse Core inflation with Headline inflation, the CPI (Consumer Price Index) is Headline inflation. Headline is the best measure for the average person as it is his cost of living (Consumer Price Index).

It is far from the truth to say that looking at Core inflation is useless. Core inflation is an indicator of the underlying movement in consumer prices since it takes out the effect of temporary disturbances and shocks that cause prices to surge or decline, independent of economic and monetary policy. Measuring core inflation helps policymakers determine whether current movements in consumer prices represent short-lived disturbances or are part of a permanent trend. Such knowledge is important to the formulation of economic policy, particularly monetary policy.

To help better understand what core inflation is, as we will see it again and again in statements from central banks, below is a primer on core inflation from the Philippine government.

http://www.nscb.gov.ph/stats/cpi/primer/default.asp

[Sturbuc]

On one hand the government says there is only 3.5% inflation yet on the other hand it gives a 6% cost of living allowance to state officials. So they obviously don't believe the numbers they publish either.

Needless to say they are talking "core" inflation which does not include fuel or food. What is important is the cost of a new TV or a car or even a house, little thing like food and fuel are not important and would foul up the inflation rate.

Do you think anyone really believes 3.5% inflation?

Well, just have a look how the inflation percentage is calculated. The "shopping basket" includes things like cars, computers, tv, cloth, food. So the exploding costs for food are partitionally compensated e.g. by the lowered prices of computer supplies. As you told before, this does not really help the average people but makes the figure transparent; but the number does as well include fuel and food.

Edited May 18, 2008 by Sturbuc

[kumsamut]

I would be more wirried on depression.

[cclub75]

Just for the record, since people constantly confuse Core inflation with Headline inflation, the CPI (Consumer Price Index) is Headline inflation. Headline is the best measure for the average person as it is his cost of living (Consumer Price Index).

It is far from the truth to say that looking at Core inflation is useless. Core inflation is an indicator of the underlying movement in consumer prices since it takes out the effect of temporary disturbances and shocks that cause prices to surge or decline, independent of economic and monetary policy. Measuring core inflation helps policymakers determine whether current movements in consumer prices represent short-lived disturbances or are part of a permanent trend. Such knowledge is important to the formulation of economic policy, particularly monetary policy.

I disagree. What you are saying is... the exact copy cat of the official manuals. The trick worked for a long time. But now, we have a new paradigm...

2 comments :

-it makes absolutly no sense to oppose "short term disturbances" (that would be of course headline) and "permanent trends" (that would be of course core).

Energy is on a permanent upward trend, energy is not "volatile", despite what can say all the rozy lollipops brigade... But still energy is excluded from core CPI ! ... So ?

This is an outrageous trick.

And energy is a goddamned important thing in our modern societies ! The world start to understand it (with pain). And it's going to get worse. Therefore core CPI will finish where it belongs : garbage.

-Core CPI is a mere political tool. Not a real "gauge".

[Johpa]

-Core CPI is a mere political tool. Not a real "gauge".

I thought the link was pretty helpful in understanding the concept of "core" inflation. Of course all statistics are used as political tools, especially in the field that Heilbronner so aptly described as the "worldly philosophy". Is it any wonder that western governments would rather have their high school students dwell on quadratic equations and leave a serious study of statistics to college level courses?

What is apparent is that the "core" inflation is a lagging indicator, and some might argue that some of its base assumptions, and statistics usually involve some sort of subjective assumptions, are now hopelessly outdated. I would think that the rise in oil prices over the past year or two have deviated far enough from the "norm" to make a mockery out of the implied need to account for price "fluctuations".

[cclub75]

-Core CPI is a mere political tool. Not a real "gauge".

I thought the link was pretty helpful in understanding the concept of "core" inflation. Of course all statistics are used as political tools, especially in the field that Heilbronner so aptly described as the "worldly philosophy". Is it any wonder that western governments would rather have their high school students dwell on quadratic equations and leave a serious study of statistics to college level courses?

Indeed. The way economy is being taught at school is appalling.

Anyway, people have to understand what are CPI, headline and core... And that those statistics are... just statistics.

Take one very simple idea : to compare CPI in different countries. The name is the same (CPI), but the result can vary a lot... People are wondering...

But it's pointless. Because the composition of the index (its components and their relative weight in the index) is different !...

Here is the composition of thai CPI

http://thaicrisis.wordpress.com/2007/06/19...-of-the-basket/

And the US CPI

http://www.bls.gov/cpi/cpiri2007.pdf

(http://www.bls.gov/cpi/home.htm)

Thai, food = 36 %

US, food = 15%

Thai, house = 23 %

US, house = 42 %

etc.

Edited May 18, 2008 by cclub75

[cclub75]

I would like to add something.

As we saw, CPI is a "tool".

But a very important one.

Because CPI has a direct relationship with the "prices deflator"... used to calculate GDP in real terms (inflation adjusted)...

If you underestimate inflation... then GDP will look higher.

If you overestimate inflation... then GDP will look lower.

Plus, CPI is used to calculate many allowances given by government. True in the US, but in Europe too.

Over 2 million workers are covered by collective bargaining agreements which tie wages to the CPI. In the United States, the index affects the income of almost 80 million people as a result of statutory action: 47.8 million Social Security beneficiaries, about 4.1 million military and Federal Civil Service retirees and survivors, and about 22.4 million food stamp recipients. Changes in the CPI also affect the cost of lunches for the 26.7 million children who eat lunch at school.

So to summarize :

-CPI is very easy to manipulate, by nature (it's an index, components and weights are changed from time to time, plus substitution principle and hedonics)

-CPI has tremendous consequences

Therefore, I think the outcome is... obvious.

[plachon]

"The PPP has no intention of making hard economic decisions regardless of what they are advised. It doesn't look good. "

The upshot of not making those hard economic decisions By you is that those hard economic decisions are made FOR you, by circumstances soon after. And they come harder, then.

The fact is that failure to deal with reality soon causes reality to deal with you.

In this case, the reality is that it has been (relatively) easy for the past 200 years to live by 'spending' easily-won deposits from within Earth.

But more deposits are getting harder and harder to find, and to exploit once they are found.

It is not just oil, it is all the other fuels, too. And the ores.

Since it is socio-politically 'unsustainable' to get people to cut back on consumption by cutting salaries and wages, Governments (world wide) can only do it by printing more money and so getting their currency to 'weaken' so that inflation does the job.

Tough, tough, tough times lie ahead for those who cannot 'downsize' their lifestyles.

They'll be particularly tough for those who have debt to service.

(From what is said in this report, the people of Thailand may not have it quite as tough as some of the Western nations.

It looks as if the UK electorate is waking up to the economic mess that Chancellor-now-PM Gordon Brown has led them into.)

Martin, come now, you can't be serious......Gordon Brown has been one of the most cautious CoE's that Britain has ever had. You can hardly blame him for a worldwide economic slowdown on the back of the US sub-prime mess and GWB's monumentally bad handling of the US economy over the last 7 years or so, or the hike in energy prices being experienced.

And if a sign of "waking up" is switching their allegiance to the Tories, then I've got news for you............... Voting in Boris as Mayor of London or David Cameron as PM is not going to lead to any major economic changes or sort out the fundamental problems of an economy and society hooked on oil. You of all people, appreciate that, so I'm not sure how people are "waking up" to the mess, apart from a rude awakening for the millions mired in debt swamps of their own making. Buy now, pay tomorrow..........Gordon Brown never forced that decision on them, though he might have spent more on debt counselling services like CAB and housing charities.........which are all the rage these days for those with little self control. Headline news today was that bankruptcies and house repos are now spreading to the middle classes.........shock, horror, panic...........time to vote in a Tory govt knee jerk reaction. Hardly "waking up"!