Is inflation spiraling out of control?

Higher oil prices, wages & govt handouts to ease cost of living, all pushing up production costs & goods prices. Central bank move to control likely.

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Worse is yet to come

SPECIAL REPORT: Business leaders are worried that the rising cost of energy, labour could put upward pressure on inflation and hit consumer spending
30/04/2012
Chiratas Nivatpumin, Phusadee Arunmart and Wichit Chantanusornsiri

Think prices for food and fuel are high already? Even worse may yet come, argue some business leaders and economists.

While inflation, as measured by the consumer price index, stood at a moderate 3.4% last month compared with the year before, the numbers belie a rising sense of discontent that costs have spiralled in recent weeks.

Food and beverages in particular rose sharply in March, up 7.3% from last year, while electricity, fuel and water prices jumped 8.5%.

The price hikes reflect a variety of factors, including supply disruptions following last year's floods, the impact of drought conditions on the agricultural sector and higher energy costs.

Recent wage increases, and the expectation of further hikes to come, is certainly a factor, as is the fact that many businesses are only now adjusting prices after holding back last year.

Prime Minister Yingluck Shinawatra this month said food prices are expected to ease starting in June, as supply shortages from last year's floods ease.

But it's a sentiment that few consumers or business leaders share, given rising energy and labour costs.

The government's policy to lift minimum wages and civil service salaries has already led some producers to push up prices, said Pimonwan Mahujchariyawong, an economist at Kasikorn Research Center

"But actually, prices now do not really reflect the rise in labour costs. We will start seeing the impact of the wage hikes over the next several months," she said.

The upward pressure on prices from rising labour costs may not ease until the second quarter of next year, Ms Pimonwan said. Minimum wages are due to rise to 300 baht per day across the country starting in January after being hiked in Bangkok and six other provinces earlier this month

Last year, price increases were driven by agricultural price increases and oil prices. This year, agricultural prices actually haven't risen much in many cases," Ms Pimonwan said.

But labour costs and the overall increase in manufacturing costs is definitely a factor [for inflation].

Kasikorn Research projects inflation of 3.9% this year and 4% next year.

Rahul Bajoria, an economist with Barclays, notes that not only prices have risen, but so has the expectation of future prices, suggesting that the central bank may begin to tighten monetary policy and raise interest rates in the second half of the year.

The rapid economic recovery from the impact of the floods has brought inflationary pressures to the fore, he wrote in a recent report. Rising energy prices, and its impact on transportation costs, has pushed prices upwards overall, while inflation expectations and pressures are likely to rise with the hike in minimum wages

Local business leaders meanwhile agree that further price hikes may be in store.

Visit Limprana, head of the Food Processing Industry Club of the Federation of Thai Industries, said it will take two to three months for food manufacturers to decide whether to raise prices.

"Higher oil prices have affected us the most because they have pushed up logistics costs," he said.

Many producers have sought to maintain margins by switching to cheaper raw materials or investing in equipment to boost productivity and efficiency.

Somchai Pornrattanacharoen, president of the Thai Wholesalers and Retailers Association, said that some members have already hiked prices to cover their added labour and fuel expenses.

"For the most part, prices are expected to increase 5% to 10%, but it won't be until the end of May before we know for sure," he said.

Mr Somchai said consumer purchasing power remains weak as people rebuild savings after spending during the Songkran holiday break and to cope with price hikes in fuel and food.

"The general feeling of many is prices have increased all around. So we can expect many people to be more cautious in spending," he said. "I don't think many people see the minimum wage increase as enough to cover the rise in overall living expenses

Mr Somchai wants the government to accept reality and allow market forces to run their course, rather than divert tax money to temporary measures that have little lasting effect.

Payungsak Chartsutipol, chairman of the Federation of Thai Industries, said the decision to raise electricity bills by 7% to 8% starting next month will have a significant impact on heavy industries such as steel and cement production.

"To what extent product prices will increase depends on market competition. If the manufacturers can maintain margins, they will keep prices stable," he said.

Vatchari Vimooktayon, the director-general of the Commerce Ministry's Internal Trade Department, said market competition should help restrain price hikes, particularly as demand and consumer purchasing power remains relatively weak.

"If you raise prices too much, your competitors may undercut you. It's better for consumers to be wise in their spending and their selection, rather than simply calling on the government to control prices," he said.

Mr Vatchari said that large manufacturers, such as the consumer goods conglomerate Saha Group, already paid wages above the minimum wage and was investing to improve productivity and efficiency rather than hiking goods prices to cope with rising costs.

As a result, I think smaller manufacturers will find it difficult to raise prices under these circumstances, given the competition in the market," he said.

Somchai Sujjapongse, the director-general of the Fiscal Policy Office, said the government continues to use fiscal policy to ease the cost of living.

Authorities recently agreed to extend tax cuts for fuel and subsidies on basic services.

The Finance Ministry also is likely to extend the current value-added tax rate of 7% indefinitely. If not extended, VAT is due to rise to 10% in October.

Free bus and rail services, due to expire this month, are also likely to be continued. The Bangkok Mass Transit Authority currently receives 192 million baht per month from the government for its free bus services in Bangkok, with the State Railway of Thailand receiving another 80 million per month for its free rail service.

(Bangkok Post: Worse is yet to come, SPECIAL REPORT: Business leaders are worried that the rising cost of energy, labour could put upward pressure on inflation and hit consumer spending, 30/04/2012, Chiratas Nivatpumin, Phusadee Arunmart and Wichit Chantanusornsiri, link) 

Inflation Vocabulary

inflation - the overall level of prices rising in the economy as a whole ภาวะเงินเฟ้อ (See Wikipedia)

Consumer Price Index (CPI) - a measure or index of the price level of ordinary goods and services that consumers buy everyday used to measure the rate of inflation, calculated each month (See Wikipedia)
inflation measured by the consumer price index

inflationary pressures - things happening in the economy that are causing the overall level of prices in the economy to rise
pressure - a force causing change
consumer - someone who buys and uses goods and services ผู้บริโภค
consumer spending  
upward pressure on inflation hits consumer spending

spiral (noun) - a continuous harmful increase or decrease in something, that gradually gets faster and faster
spiral (verb) - to continuously become worse and worse
costs have spiralled in recent weeks

inflationary spiral - a continuous harmful increase or decrease in inflation, that gradually gets faster and faster
spiral out of control

spiraling costs
a cost spiral
a rising sense of discontent that costs have spiralled in recent weeks
measures to control an inflationary spiral

wage/price spiral - "the price/wage spiral ... represents a vicious circle process in which different sides of the wage bargain try to keep up with inflation to protect real incomes. Thus, this process is one possible result of inflation. It can start either due to high aggregate demand combined with near full employment or due to supply shocks, such as an oil price hike. There are two separate elements of this spiral that coexist and interact: 1. Business owners raise prices to protect profit margins from rising costs, including nominal wage costs, and to keep the real value of profit margins from falling, 2. Wage-earners try to push their nominal after-tax wages upward to catch up with rising prices, to prevent real wages from falling.....So wages chase prices and prices chase wages, persisting even in the face of a (mild) recession. This price/wage spiral interacts with inflationary expectations to produce long-lived inflationary process. Some argue that incomes policies or a severe recession is needed to stop the spiral." (See Wikipedia)

Business leaders are worried that the rising cost of energy, labour could put upward pressure on inflation and hit consumer spending

central bank - the main bank in a country in charge of monetary policy that controls the supply of money and credit in a country and provides financial services to the government and other banks (See Wikipedia)

monetary policy - the way in which a government or central bank controls the supply of money and credit in an economy (See Wikipedia)
tighten monetary policy - increasing interest rates to control inflation (following Thailand's official monetary policy of inflation targeting)

inflation targeting - "an economic policy in which a central bank estimates and makes public a projected, or target, inflation rate and then attempts to steer actual inflation towards the target through the use of interest rate changes and other monetary tools" (See Wikipedia)
interest - payments made for the use of another's money for a period of time
interest rate  - the cost of borrowing money, usually expressed as a percentage of the amount borrowed (See Wikipedia)

Rahul Bajoria, an economist with Barclays, notes that not only prices have risen, but so has the expectation of future prices, suggesting that the central bank may begin to tighten monetary policy and raise interest rates in the second half of the year.

worse is yet to come - things that are even worse (more bad, badder) will happen in the future
even worse may yet come

fuel - gasoline, natural gas, coal (and indirectly electricity which is mostly produced from natural gas and coal) 

Think prices for food and fuel are high already? Even worse may yet come, argue some business leaders and economists.

moderate - neither very great nor very small in strength, size, amount or degree ระดับปานกลาง
belie - 1. shows that something is different from what it appears to be; 2. seem to show that something is not true

discontent - the unhappy feeling that you have when you are not satisfied with something ไม่พอใจ
rising sense of discontent - more and more are not feeling happy about something
the numbers belie a rising sense of discontent

beverages - drinks (milk, fruit juice, beer) เครื่องดื่ม

While inflation, as measured by the consumer price index, stood at a moderate 3.4% last month compared with the year before, the numbers belie a rising sense of discontent that costs have spiralled in recent weeks. Food and beverages in particular rose sharply in March, up 7.3% from last year, while electricity, fuel and water prices jumped 8.5%.

hike - increase
price hikes - increases in prices
further hikes to come - prices increases in the future
restrain - stop or prevent from happening or doing somerthing (example: the rabid dog was restrained so that he would not bite people)
restrain price hikes - prevent price increases, stop price increases from happening

reflect - to show สะท้อน แสดงถึง
variety - many different types of things or people ความหลากหลาย
factors - the different things that affect the outcome of a situation, event, or decision ปัจจัย a fact or situation which influences the result of something 
the price hikes reflect a variety of factors

disruption - some event that stops an activity, interrupts activity, prevents activity from happening
supply disruptions

sector - a part of a country's economy or business activity ภาคเศรษฐกิจของประเทศ (See Wikipedia)
impact - an effect or influence ผลกระทบ
drought - a period of time when there is very little rain and water available ความแห้งแล้ง  (See Wikipedia)
impact of drought conditions on the agricultural sector

The price hikes reflect a variety of factors, including supply disruptions following last year's floods, the impact of drought conditions on the agricultural sector and higher energy costs.

wage - an amount of money that you earn for working, usually according to how many hours or days you work each week or month ค่าจ้าง
holding back - delaying; not doing doing something now, but waiting for the future  

Recent wage increases, and the expectation of further hikes to come, is certainly a factor, as is the fact that many businesses are only now adjusting prices after holding back last year.

ease - to make less severe บรรเทา  ทำให้ง่าย
food prices ease
expected - believe will happen คาดว่า (จะเกิดขึ้น)
food prices are expected to ease
shortages - when there are not enough goods for people to buy การขาดแคลน
shortages from last year's floods ease
supply shortages
supply shortages ease

Prime Minister Yingluck Shinawatra this month said food prices are expected to ease starting in June, as supply shortages from last year's floods ease.

sentiment - feelings; a thought, opinion or idea based on a feeling about a situation, or a way of thinking about something กระแส, แนวความคิด, ความคิดเห็น
consumers - people who buy things (individuals and families)
share - to have or use something at the same time as someone else ใช้ร่วมกัน
shared sentiment

But it's a sentiment that few consumers or business leaders share, given rising energy and labour costs.

policy - a set of plans or action agreed on by a government, political party, business, or other group นโยบาย (See Wikipedia)
wages - the amount of money earned per hour by a worker
minimum wages - the smallest amount of money that can be paid to a worker for their work (per hour or per day)
lift minimum wages - increase minimum wages
civil service - people who work for the government (for their whole career)
civil service salaries - the money that government workers get each month (in their pay checks)
second quarter - the second three months of the fiscal year (the calendar that the government and business use for budgeting and reporting)

The government's policy to lift minimum wages and civil service salaries has already led some producers to push up prices, said Pimonwan Mahujchariyawong, an economist at Kasikorn Research Center. "But actually, prices now do not really reflect the rise in labour costs. We will start seeing the impact of the wage hikes over the next several months," she said.  The upward pressure on prices from rising labour costs may not ease until the second quarter of next year, Ms Pimonwan said. Minimum wages are due to rise to 300 baht per day across the country starting in January after being hiked in Bangkok and six other provinces earlier this month. Last year, price increases were driven by agricultural price increases and oil prices. This year, agricultural prices actually haven't risen much in many cases," Ms Pimonwan said. But labour costs and the overall increase in manufacturing costs is definitely a factor [for inflation].  Kasikorn Research projects inflation of 3.9% this year and 4% next year.

rapid - happening quickly อย่างรวดเร็ว
recovery - when the economy starts to get better after an economic downturn or recession (more jobs, higher incomes) การฟื้นฟูสภาพ
economic recovery - when the economy gets better (after an economic downturn) 
rapid economic recovery - when the economy gets better quickly
pressures - forces causing changes
inflationary pressures - forces causing the level of prices in the economy to rise
bring to the fore - make more important
brought inflationary pressures to the fore
in store - what will or might happen in the future (example: what's in store for him, he does not know)
further price hikes may be in store
expectations - what people think might happen in the future การคาดคะเน
inflation expectations  
logistics - the activity of transporting, storing, and tracking goods (being sent from one place to another)(See Wikipedia) การขนส่งและจัดจำหน่ายสินค้า

The rapid economic recovery from the impact of the floods has brought inflationary pressures to the fore, he wrote in a recent report. Rising energy prices, and its impact on transportation costs, has pushed prices upwards overall, while inflation expectations and pressures are likely to rise with the hike in minimum wages. Local business leaders meanwhile agree that further price hikes may be in store.  Visit Limprana, head of the Food Processing Industry Club of the Federation of Thai Industries, said it will take two to three months for food manufacturers to decide whether to raise prices. "Higher oil prices have affected us the most because they have pushed up logistics costs," he said.

margins - profit margins, level or degree of profitability of a business; profits as a percentage of revenue (the difference between the cost of buying or producing sth and the price that it is sold for, calculated as a percentage of the selling price) (See Wikipedia)
maintain - to keep รักษา
maintain margins - when the business continues to be profitable (as it has been in the past)
raw materials - materials in their natural state before being processed or used in manufacturing
boost - to increase; to strengthen เพิ่ม; ทำให้มีกำลังมากขึ้น
productivity - producing more with the same amount of inputs (labour, energy, etc) การผลิตสินค้า
boost productivity - increase productivity
efficiency - doing a task well without wasting time, money, resources (See glossary) การทำงานอย่างมีประสิทธิภาพ คุ้มค่าเวลาและใช้พลังงานหรือต้นทุนในการผลิตน้อย เพื่อให้ได้ผลผลิตมาก getting more done with the same or less resources
consumers - people who buy things (individuals and families)
purchasing power - ability to buy goods and services with your income (inflation and economic downturn reduces) 
consumer purchasing power
cautious - being careful to avoid problems and dangers
cautious in spending - being careful to not spend too much money
cope - to deal successfully with a difficult situation รับมือกับ  (See glossary) deal with a problem (make it manageable, not always solve problem)
cautious - careful to avoid danger ระมัดระวังไม่ให้เกิดขึ้น

Many producers have sought to maintain margins by switching to cheaper raw materials or investing in equipment to boost productivity and efficiency. Somchai Pornrattanacharoen, president of the Thai Wholesalers and Retailers Association, said that some members have already hiked prices to cover their added labour and fuel expenses. "For the most part, prices are expected to increase 5% to 10%, but it won't be until the end of May before we know for sure," he said. Mr Somchai said consumer purchasing power remains weak as people rebuild savings after spending during the Songkran holiday break and to cope with price hikes in fuel and food.  "The general feeling of many is prices have increased all around. So we can expect many people to be more cautious in spending," he said. "I don't think many people see the minimum wage increase as enough to cover the rise in overall living expenses

reality - what is actually happening ความเป็นจริง
fantasy - not reality การจินตนาการ,การนึกฝัน, ความเพ้อฝัน, ผลิตผลของจินตนาการ
accept reality - not create your own fantasy  
market forces - the market forces of supply and demand for goods with prices set at the market clearing level (See Wikipedia)
allow market forces to run their course
divert - 1. to use something for a different purpose เบี่ยงเบน 2. make travel in a different direction, along a different route เปลี่ยนเส้นทาง As
temporary - done or used for only a limited period of time, i.e., not permanent ชั่วคราว
measures - actions taken to deal with a problem มาตราการ
temporary measures - actions to solve
lasting - continuing to exist or have an effect for a long time ที่กินเวลานาน
lasting effect
little lasting effect
divert tax money to temporary measures that have little lasting effect.
significant - important สำคัญ
have a significant impact on - caused a big and important change
have a significant impact on heavy industries such as steel and cement production.
stable - not changing frequently and not likely to suddenly become worse มั่นคง คงที่, ไม่เปลี่ยนแปลง
keep prices stable
extent - size ขนาด
the extent of product price increase
to what extent X happens depends on Y
to what extent product prices will increase depends on market competition

Mr Somchai wants the government to accept reality and allow market forces to run their course, rather than divert tax money to temporary measures that have little lasting effect. Payungsak Chartsutipol, chairman of the Federation of Thai Industries, said the decision to raise electricity bills by 7% to 8% starting next month will have a significant impact on heavy industries such as steel and cement production.  "To what extent product prices will increase depends on market competition. If the manufacturers can maintain margins, they will keep prices stable," he said.

demand - the need and desire to buy goods and services by households and businesses
demand is weak - demand is low compared to normal level
demand remains weak - demand continues to be low, below normal
relatively - somewhat, not large or great
demand remains relatively weak
undercut - to sell goods or services at a lower price than your competitors
your competitors may undercut you
calling on the government to control prices
conglomerate - a large company joining together a group of companies with different business activities
improve - to make better ทำให้ดีขึ้น
improve productivity

Vatchari Vimooktayon, the director-general of the Commerce Ministry's Internal Trade Department, said market competition should help restrain price hikes, particularly as demand and consumer purchasing power remains relatively weak. "If you raise prices too much, your competitors may undercut you. It's better for consumers to be wise in their spending and their selection, rather than simply calling on the government to control prices," he said.  Mr Vatchari said that large manufacturers, such as the consumer goods conglomerate Saha Group, already paid wages above the minimum wage and was investing to improve productivity and efficiency rather than hiking goods prices to cope with rising costs.

circumstances - situation, conditions in which we live
under these circumstances - in this situation

fiscal - connected with the government budget, i.e., public money เกี่ยวกับงบประมาณ
fiscal policy - government policy on government spending and taxation
cost of living (COL) - the cost of living in a certain way at a certain place (maintaining a standard of living) (See Wikipedia)
ease the cost of living - decrease the cost of living to make life easier (for poor people living on the edge of not having any money at all, for example)
use fiscal policy to ease the cost of living

extend - to add more time; to continue for a particular period of time ยืดออกไป   to make a period of time longer ขยายออกไป
extend tax cuts
indefinitely - for a period of time with no fixed end ไม่มีข้อกำหนด
extend indefinitely
extend tax cuts for fuel and subsidies on basic services

subsidies - when the government pays part of the cost of some activity เงินช่วยเหลือ เงินสนับสนุน
services - บริการต่างๆ things produced in service industries, not a physical good that can be bought, a waitress and a cook in a restaurant provide a service, technically: a sequence of activities that does not result in ownership of the outcome (See Wikipedia on services and the goods and services continuum)
subsidies on basic services

value-added - the amount by which the value of a product increases at each stage of the production process
valued-added tax (VAT)- a tax that is added to the price of many goods and services at each stage of the production process based on the "value-added" at that stage (See Wikipedia)
current - of the present time ปัจจุบัน
the current value-added tax rate of 7%
expire - to come to an end or stop being in use หมดอายุ
due to expire this month

"As a result, I think smaller manufacturers will find it difficult to raise prices under these circumstances, given the competition in the market," he said. Somchai Sujjapongse, the director-general of the Fiscal Policy Office, said the government continues to use fiscal policy to ease the cost of living. Authorities recently agreed to extend tax cuts for fuel and subsidies on basic services. The Finance Ministry also is likely to extend the current value-added tax rate of 7% indefinitely. If not extended, VAT is due to rise to 10% in October Free bus and rail services, due to expire this month, are also likely to be continued. The Bangkok Mass Transit Authority currently receives 192 million baht per month from the government for its free bus services in Bangkok, with the State Railway of Thailand receiving another 80 million per month for its free rail service