Poll Reveals Inflation Fears

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ECONOMIC POLICIES

Poll reveals inflation fears

By Petchanet Pratruangkrai

Sucheera Pinijparakarn

The Nation

Businesses say government support is needed if daily wages get increased

An immediate implementation of a nationwide daily minimum wage of Bt300 would trim gross domestic product (GDP) by 0.2-0.4 per cent and raise the inflation rate by 1.1-1.3 percentage points, a survey led by the University of the Thai Chamber of Commerce (UTCC) released yesterday showed.

The survey was based on the scenario that the new government would increase minimum wages without measures to lessen the burden on enterprises. On the other hand, if the government coupled the raise with supportive measures, the economy would grow by an additional 1.0-1.3 per cent and the inflation rate would increase by only 0.8-1.0 percentage point, the survey found.

The forecasts were based on Commerce Ministry estimates of GDP growth of 4.4-4.5 per cent and inflation at 3.2-3.7 per cent.

Thanavath Phonvichai, director of the UTCC's Economic and Business Forecasting Centre, said a sudden implementation of the Bt300 wage would hit most enterprises, as more than 65 per cent of the country's employers had some workers earning the minimum wage.

"About 500,000 workers could be laid off, while 100,000-200,000 businesses, in particular SMEs, would shut down operations within three months of implementing the Bt300 daily wage," he said.

Thanavath explained that although people would have higher incomes, enterprises would have to raise goods prices after wages rose. The problem would cause higher inflation and lower spending, and that would harm the overall economy.

The survey of 800 businesses from July 16 to 18 found that almost 95 per cent of respondents said they would be unable to shoulder the burden of the higher wages.

Employers also said they might employ more foreign labourers, increase prices of goods and service, shift to automatic machinery, face reduced profits, downsize their staff or close down altogether.

He said the government might have to spend Bt80 billion to Bt90 billion to subsidise higher wages each year. The government should also set up a fund to promote development of workforces and increase the competitiveness of small and medium-sized enterprises, he said.

Subsidies sought

The survey showed that 48.6 per cent of respondents wanted the government to subsidise the higher payments. About 28.1 per cent wanted the government to reduce corporate tax, 16.4 per cent said it should set up training programmes for workers and almost 7 per cent said it should increase wages step by step.

Saowanee Thairungroj, vice president of UTCC Research Division, pointed out that 53.4 per cent of respondents wanted the government to allow the market mechanism to drive up minimum wages as well as monthly salaries.

TMB Bank's research department warned that core inflation would spike by 2.3 percentage points if the Pheu Thai Party implemented the nationwide wage hike in the first quarter of next year.

TMB Analytics said the food price index would nearly double because of the policy, which would raise minimum wages by 26 per cent on average. The impact on inflation would be strongly felt in the second and third quarters when higher production costs were passed on to consumers.

Core inflation, which excludes volatile prices of food and energy, stood at 2.6 per cent in June and is expected to hit 3 per cent for the year.

"Core inflation, if it rises to 5 per cent late next year, could pose grave danger to the Thai economy," TMB Analytics said. "In the past 10 years, despite global overheating and oil-price spikes, core inflation has never breached the 4-per-cent level. At 5 per cent, it is also beyond the central bank's inflation target. This means more interest-rate hikes next year."

It expected the biggest impact to be on food prices, which constitute one-third of the pricing index. In June, the food price index stood at 8 per cent. If the wage hike took effect, it could rise to 12-15 per cent - the level seen in 2008 before the sub-prime crisis struck the globe.

"This goes against the new government's intentions to reduce the cost of living through a higher wage," it said.

It added that the policy would not benefit all workers, as many were not in a position to bargain for higher wages but would have to bear higher costs of living.

"The hike alone cannot ease the cost of living, but the government needs to launch other measures to reduce the income-distribution gap, maintain balance in the labour market and stabilise prices for the sake of long-term economic growth," it said.

Kresearch forecast

Kasikorn Research Centre forecasts headline inflation next year to surge to 5 per cent from an expected 4 per cent because of higher pressure from both commodity prices and the incoming Pheu Thai-led government's policies.

The new government's plans to increase the daily minimum wage, raise the salary of bureaucrats to Bt15,000 per month and its rice-price guarantee scheme in the fourth quarter would force interest rates higher and increase business costs, said Wiwan Tharahirunchote, executive chairwoman of KResearch.

KResearch expects core inflation next year to reach 3.4 per cent, while the core-inflation target this year is expected to surpass that of the BOT, which is targeting a maximum of 3.0 per cent. It predicted that next month's meeting of the BOT's Monetary Policy Committee would raise the policy interest rate to 3.5 per cent and that the rate was likely to climb to 4.5 per cent next year.

'Most worrying'

According to a Bangkok University Economist Poll, of 26 Pheu Thai economic policies, 14 have been singled out as "most worrying".

The rise in the minimum wage is on the top of the list at 93.5 per cent, followed by farmers' credit cards (80.6 per cent) and free tablet computers (80.6 per cent).

The poll, covering 62 economists at 26 institutions, showed that economists were concerned about the 14 policies as they dealt directly with the cost of living.

However, they supported infrastructure-related projects, with the biggest support going to vocational training centres (93.5 per cent), drug eradication (87.1 per cent), and free Internet services in public places (79 per cent).

-- The Nation 2011-07-23

[SICHONSTEVE]

Oh dear khun Yingluck what have you done!!!!

Looks like the economy, unemployment levels, cost of living (especially for the poor), business collapses, inflation, interests rates, strength of the baht and many more things are going to go through the roof - and that's from the minimum wage increase to 300 Baht ONLY!!!!!

At least I will benefit as I am repatriating money to England so will get a good rate of exchange when the strength of the Baht increases.

Perhaps now, the poor will realise the error of their ways in blindly supporting and voting for a bunch of incompetent cretins that know nothing about governing and lied to the people for the sole purpose of getting elected!!

Well live up to your promises khun Yingluck as the people are not prepared to be let down - even though this will bring Thailand to it's knees and make life so much more difficult for the poor. Al least their children can play with their tablets assuming the family can afford to pay for the electricity that is!!!

[DoctorG]

I wonder if a survey done by the University of the Chamber of Commerce would be biased towards the viewpoint of the employers

[Jimi007]

Predicted 5% inflation next year along with the very strong baht has me thinking about moving. I was just in California where food and gas is much less than here!

[SICHONSTEVE]

I wonder if a survey done by the University of the Chamber of Commerce would be biased towards the viewpoint of the employers

That's rediculous!!! This body reports on the wellbeing of industry and has polled a large amount of industry business managers to see their response to Pheu Thai policy and to assess what the likely affects of implementing them would be on their businesses. They were warning Pheu Thai long before the election not to pursue this policy but did they heed their words, NO!!! and so they have their prize and now must find out a means of getting out of this right pickle they have got themselves into. I am watching with glee at their predicament!!!

[473geo]

I wonder if a survey done by the University of the Chamber of Commerce would be biased towards the viewpoint of the employers

95% of the respondents say they will be unable to bear the burden of higher wages.......

Looks bad for the Thai people then........the same article predicts an inflation figure of 3.4%........so if the employers cannot bear the burden of higher wages.......well in three years the Thai wage earners will have lost circa 10% purchasing power........at least their impact figues regarding the minimum wage are more balanced.....note: out of the 3.4% inflation rate predicted only circa 1.1% will be attributed to the raise in the minimum wage

Also the GDP is expected to rise 4.5% and the negative impact of the 300 baht minimum is predicted at 0.4%....doesn't quite appear to be as desperate as it is being portrayed by business..

[pastitche]

Oh dear khun Yingluck what have you done!!!!

Looks like the economy, unemployment levels, cost of living (especially for the poor), business collapses, inflation, interests rates, strength of the baht and many more things are going to go through the roof - and that's from the minimum wage increase to 300 Baht ONLY!!!!!

At least I will benefit as I am repatriating money to England so will get a good rate of exchange when the strength of the Baht increases.

Perhaps now, the poor will realise the error of their ways in blindly supporting and voting for a bunch of incompetent cretins that know nothing about governing and lied to the people for the sole purpose of getting elected!!

Well live up to your promises khun Yingluck as the people are not prepared to be let down - even though this will bring Thailand to it's knees and make life so much more difficult for the poor. Al least their children can play with their tablets assuming the family can afford to pay for the electricity that is!!!

The University of the Chamber of Commerce sounds as objective as would be the University of Manchester United.

You are repatriating money to England you say, that means you are no longer committed to being here. Why will your business suffer here, what industry are you in that can be moved there?

[lungmi]

The Baht already goes down, the retail already have to fight with 5% of higher prices, Speculations are possible but I think it's the general tendency.

[khaowong1]

Oh dear khun Yingluck what have you done!!!!

Looks like the economy, unemployment levels, cost of living (especially for the poor), business collapses, inflation, interests rates, strength of the baht and many more things are going to go through the roof - and that's from the minimum wage increase to 300 Baht ONLY!!!!!

At least I will benefit as I am repatriating money to England so will get a good rate of exchange when the strength of the Baht increases.

Perhaps now, the poor will realise the error of their ways in blindly supporting and voting for a bunch of incompetent cretins that know nothing about governing and lied to the people for the sole purpose of getting elected!!

Well live up to your promises khun Yingluck as the people are not prepared to be let down - even though this will bring Thailand to it's knees and make life so much more difficult for the poor. Al least their children can play with their tablets assuming the family can afford to pay for the electricity that is!!!

No, the poor will never realize the error of their ways. The problem is the same the world over. Some people just believe all the rhetoric that a politician spews forth from his mouth.

"Employers also said they might employ more foreign labourers, increase prices of goods and service, shift to automatic machinery, face reduced profits, downsize their staff or close down altogether."

Yeah, that's really going to solve all the problems. Inflation is going to hit Thailand like a Tsunami if Yingluck puts together all the programs she promised. It can't be done.

It's going to be interesting to watch what will happen.

[lannarebirth]

The ONLY way the minimum wage increase (which I'm in favor of) will work, is if 100% of that cost is shouldered by private industry. It's a joke to think that government "subsidies" might work. I can't think of a greater opportunity for graft between government and businesses than subsidising fictitious employees and indeed fictitious companies. Apparently I am the only one this seems obvious to.

[12DrinkMore]

The ONLY way the minimum wage increase (which I'm in favor of) will work, is if 100% of that cost is shouldered by private industry.

That will not happen, they cannot afford it. The companies will no longer engage in their current "social function" of employing more staff than needed (as an example; petrol pump attendants --- gone)

It's a joke to think that government "subsidies" might work.

Government subsidies are a market distortion, along with minimum wages creating a miss-allocation of resources, Governments should stay out of these matters and stick to infrastructure.

I can't think of a greater opportunity for graft between government and businesses than subsidising fictitious employees and indeed fictitious companies. Apparently I am the only one this seems obvious to.

Not sure what you mean here.

Some of the the main benefactors will be government employees, resulting in more taxes. I wonder who will be paying them?

Don't get me wrong, Asia, one of the main exporters of goods and commodities will certainly experience a rise in living standards. But for the Thai government to artificially ramp this up over the Asian average will only create a short term benefit. Productivity has to be increased accordingly, or the global manufacturers will move to Cambodia, Vietnam and Malaysia etc.

Edited July 23, 2011 by 12DrinkMore

[lannarebirth]

I can't think of a greater opportunity for graft between government and businesses than subsidising fictitious employees and indeed fictitious companies. Apparently I am the only one this seems obvious to.

Not sure what you mean here.

Think about it. Graft goes one of two ways. You either pay the government guy to get favors or the government guy cuts you in on the public treasury in exchange for a kickback. Well, if the government comes to inspect your business of 200 employees to establish how much the government owes you in subsidies, can you not imagine an agreement between inspector and owner to say there are actually 300 employees and the subsidies that might accrue to the additional 100 to be split between owner and inspector? That's SOP kind of stuff here. I'm really surprised no one else has come up with it. I guarantee you you'll be reading a scandal to that affect inside 2 years if this subsidy plan goes through.

[cloudhopper]

22% in VN already.

http://www.bloomberg.com/news/2011-07-23/vietnam-s-inflation-accelerates-to-22-highest-level-among-asia-economies.html