Politics May Fuel Inflation In Thailand

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INTEREST RATE

Politics may fuel inflation

By SEETALAVAJIT SABAYJAI

THE NATION

Domestic politics could push the Bank of Thailand into raising interest rates again in the second half of this year to vent inflationary pressure, according to HSBC.

"There is concern over the new political power on July 3. It is inflationary if [incoming politicians] promise a lot of things," Wellian Wiranto, the bank's Singapore-based Asian economist, said yesterday.

The central bank is expected again to hike the policy interest rate by 50 basis points, possibly in the fourth quarter of the year, to bring it up to 3.50 per cent by year-end, according to HSBC.

May's headline inflation stayed close to economists' expectations at 4.19 per cent while core inflation, which excludes volatile raw-food and energy prices, breached market forecasts to hit 2.48 per cent.

In the next few months, the pent-up price pressure will come down and inflationary pressure could build up again after the new government takes office.

"We might see the central bank tightening near the end of the year if inflation does not tempt [ease]," he said.

In addition, the rising pass-through in prices of products is likely going from the headline figure to core prices, Wiranto said, agreeing with the view of the central bank's Monetary Policy Committee that the core figure could surpass the upper end of the inflation target. The central bank's target range for core inflation is 0.5-3 per cent this year.

This year's headline inflation is estimated to reach 4 per cent and core prices are likely to increase 2.8 per cent, according to HSBC.

Besides inflation, which continues to be a concern in Thailand, domestic politics could also affect the country's long-term economic growth, particularly by throwing a cold towel on investment.

"A challenge is how to overcome politics," he said. The political pressure could direct more to investment, not growth. However, investment continues to come in.

Thailand would see much more investment if there weren't for the political issues, Wiranto said.

The economic recovery is still robust even though there is a question mark on domestic politics. The bank projects gross domestic product, which is being driven by two connected engines - domestic consumption and exports - to expand 4.9 per cent this year and 5.7 per cent next year.

Thailand offers many advantages, from good geographic location and a large pool of suppliers in the manufacturing sector, especially automobile plants, to sufficient natural resources, but the country has to improve its education system, labour productivity and political stability, Wiranto said.

-- The Nation 2011-06-14

[geriatrickid]

Rubbish. The political situation today is no different than it was last week and is certainly much better than a year ago.

What will fuel inflation is Finance Minister Korn's fiscal policy.

Cue his fan club to rush to his defense now and to them I ask, how come Thailand never releases reliablle supporting documentation on its budget? You know, the kind of documentation one sees in Sweden, Australia, Singapore, Korea and other countries? Mr Korn and the finance ministers that came before him have alot in common in that the concept of transparency is truly foreign. Where are the auditor general reports? Yea, and inflation going to be blamed on the current political situation? Sorry, but the seeds were sown and fertilized over the decades.

[otherstuff1957]

The unfortunate truth is that the Thai economy relies on cheap labor in order to remain competitive. There are only two ways to keep labor cheap: Keep the minimum wages low & keep the supply of unskilled laborers high. Better education and an increasingly affluent society will inevitably spell the end of both of those conditions. Bringing in illegal migrant workers (as the Thais are doing now) is a short-term solution that brings with it its own set of long-term problems (although the Burmese, Lao and Khmer can integrate into Thailand more easily than the Africans, Arabs and Turks can into Europe). Populist politics may hasten the advent of inflation, but the causes of inflation are already here.

[anterian]

I agree with both of the previous two comments, the present trends in Thailand are the long term result of previous policies which have been in force since post WW2. Thailand is slowly moving from an agrarian to a manufacturing nation, but this is not being supported by politicians or education. The result is political instability.