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Thailand: Inflation forecast raised on wage hike

The government has raised its forecast for the country’s inflation rate this year to 0.7-1.7% from 0.6-1.6% as an improving economy and daily minimum wage hike are expected to push up consumer prices.

Pimchanok Vonkorpon, director-general of the Trade Policy and Strategy Office, said the rates will also be boosted by a growing global economy, higher oil prices and higher demand for certain products.

The cabinet on Tuesday endorsed the daily minimum wage hike nationwide from April 1, an increase of 5-22 baht as approved by the tripartite national wage committee on Jan 17. The highest increases happened in Chon Buri, Phuket and Rayong.

The Commerce Ministry earlier estimated a hike in the daily minimum wage will affect manufacturers’ production costs by only 0.05%, saying there is no reason for product prices to rise.

Industries projected to be most affected include food and drinks, tanning, office supplies and basic metal products. Those most affected in the service sector include construction, wholesale and retail, car and motorcycle repair, hotels and food services.

Labour costs in the manufacturing and service sectors will increase by 10 billion baht a year, accounting for 0.07% of GDP.

The ministry projects higher production costs from the wage hike will raise export costs by 0.022% or 167 million baht, affecting printing, leatherwear, garments, furniture and metal fabrication.

Ms Pimchanok said the latest forecast is based on an economic growth rate of 3.6-4.6% this year, up from an earlier projection of 3.5-4%; Dubai oil prices of US$55-65, up from $50-60; and an exchange rate of 32-34 baht to the US dollar, up from 33-35.

The Commerce Ministry reported yesterday that inflation based on the consumer price index (CPI) eased to 0.68% year-on-year in January after a 0.78% rise in December.

Prices rose 0.07% from December, mainly driven by higher transport and communication costs, as well as apparel and footwear.

Ms Pimchanok said of the 422 products and service items which are used to gauge the inflation rate, 129 of them, including limes, finished food, instant noodles, beer and liquor, were found to have experienced price hikes in January. No price changes were registered for 206 items, with 87 items seeing the price drop.

The core CPI, which excludes raw food and energy prices, rose 0.58% in January year-on-year.

Last year, Thailand’s inflation rate stood at 0.66%, compared with 0.19% in 2016, -0.90% in 2015 and 1.89% in 2014.

Core inflation, which excludes oil and seasonal goods, was 0.62% year-on-year in December and 0.56% for the whole of 2017.

The Bank of Thailand forecast headline inflation of 1.1% this year and consumer prices are expected to reach the lower band of the 1-4% target range in the first half based on both demand-pull and cost-push inflation.

Supply-side factors driven by fresh food and energy prices are a risk factor that could prevent the inflation forecast from taking hold, the bank said last month.

Jingyang Chen, an HSBC economist, said in a report that raw food prices dragged down headline inflation in January, but prices are expected to normalise in the months ahead.

Agricultural supply may fall after a bountiful harvest last year, pushing up rice and fresh fruit prices from the low base seen in 2017.

More importantly, global oil prices are likely to remain well above 2017 levels, putting upward pressure on headline CPI, the report said.

Source: https://www.bangkokpost.com/business/news/1405950/inflation-forecast-raised-on-wage-hike