Inflation in Thailand...

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For sentiment's sake I went back to read my first trip report and stir up some old memories. One thing I can across was the prices I mentioned about hotels I stayed at or things I did. One that struck me was my booking at the good ol' Dynasty Inn near Nana. Back in Jan 2006 it ran a measly 1,080 baht. Plus, the USD-THB exchange rate was about 41 or so. It was quite the cheap digs. About $25 USD or so.

Just checked and the same room at the Dynasty Inn is going to run 1,480 baht now! In pure baht terms, almost a 40% increase in a little under two and a half years. Or to annualize it, an inflation rate running at about an 15% clip! And in dollar terms that same room, at the current USD-THB exchange rate of 32ish, costs approximately $45 - an almost 85% increase!

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COST OF LIVING
Prices hit 10-year high

Inflation at 8.9% in June; possibility of 7% rate for the whole year

BANGKOK: -- Consumer prices hit a 10-year high of 8.9 per cent last month, heightening anticipation the monetary authorities will soon take interest rates off cruise control and shift up a gear to dampen inflation expectations.

The Commerce Ministry said escalating oil prices helped push last month's inflation up to a level not seen since June 1998. With the world oil price pegged to soar to US$150 (Bt5,000) per barrel, the ministry has revised its oil-price base for inflation calculations from $105 a barrel to between $120 and $125.

"The ministry expects the average oil price will be $142 a barrel in the remaining months, which would drive inflation to 7 per cent for the year," deputy permanent secretary Pairoa Sudsawarng said yesterday.

Inflation in the first half shot up to 6.3 per cent, exceeding the ministry's whole-year target of 5.5 per cent.

"Inflation in June surpassed our expectations and market consensus only to firm up the chances for a policy rate outcome of a 50-basis-point hike when the Monetary Policy Committee meets mid-July," Jun Trinidad of Citigroup wrote in a report entitled "Thailand Economic Flash".

"We believe policy-makers may want to start rushing the adjustments to the policy-rate setting in view of the accelerating inflation momentum. Core inflation in June crossed 3.5 per cent, the high end of the Bank of Thailand's annual core-target range, a first since the Bank of Thailand adapted the inflation-targeting programme."

However, the Commerce Ministry remains optimistic the oil-price spurt may have run out of gas and that oil prices will not rise as expected in the remaining months, so it has left its annual target unchanged at 5.5 per cent for the year.

Oil prices averaged $103.80 a barrel in the first half, peaking at $136.50 late last month, compared with $65.70 in June 2007.

Pairoa said last month's high inflation rate was acceptable for the economy and in academic terms, because it was due mainly to the skyrocketing oil price, which affected all other countries.

In May, inflation peaked at 25.2 per cent in Vietnam, 10.4 per cent in Indonesia, 9.6 per cent in the Philippines, 8.2 per cent in India, 7.7 per cent in China, 7.5 per cent in Singapore and 3.8 per cent in Malaysia.

However, the heat-up in inflation may suffocate consumer sentiment as the cost of living goes up, but incomes remain stagnant, she said.

Prices of food and beverages increased 11.4 per cent last month, with flour jumping 35.8 per cent, pork 31.6 per cent and eggs and dairy products 11.1 per cent year on year.

Non-food and beverage prices increased 7.2 per cent, largely from the oil price increasing 44.7 per cent and transportation and communications costs rising 16.8 per cent.

Last month's core inflation, which excludes volatile energy and food prices, increased 3.6 per cent year on year and 0.9 percentage point from May.

Core inflation in the first six months of the year was 2.2 per cent.

-- The Nation 2008-07-02



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Looks like I may have to cut the frequency of my trips from once every two years to one in three!

[rxpharm]

Yes DP, this is a worldwide problem - the cost of living has gone up in every country.

I have speculated if this continues on that p4p prices will increase (well, except for some places in the USA! ). In Thailand many of the girls are supporting their families. The amount required to support the families continues to increase with these inflationary pressures. As long as oil stays high I can see the days of the 500 - 1000 Baht shag becoming rare.

For those of you who think increasing p4p prices are going to ruin it for you - just think about how things are costing more in your own country. The same thing is happening for people in Thailand.

[TTChang]

(rxpharm @ Jul. 04 2008,18:34) ... As long as oil stays high I can see the days of the 500 - 1000 Baht shag becoming rare.

Or more common, if the number of customers visiting p4p in Thailand falls?  Supply and demand in low season probably has the biggest influence, whatever the Isan family 'expectations'.  

There are a few farming families mothballing the tractor and rediscovering the benefits of buffalo power.  Although I gather that the buffalo need farang recovery money sometimes ....  

[rossco]

Where do you get a Buffalo serviced?

[PigDogg]

Food and energy prices up everywhere.

But I think Nana hotel rates are a localized problem.

Pattaya room rates seem the same to me in baht though more in dollars.

Dynasty Inn at 1500 is a joke. Try the Omni for 2000, same price as a few years ago. But join the Ascott Club first, it's free, for a slight discount.

[SamplerDoc]

Prices for fuel are up worldwide and as a result everything costs more including food.
You can be sure once these prices rise, they will not drop, ever.
The p4p prices have gone up in most places and it will not be long (or should not) before they would rise here.
The fact that Thai people pay more for food and gas is one issue and add to that far less tourists are coming here this year as a result of costs here and at home that makes matters much worse for the locals.
Thai goverment recently announced they would fall short on number of tourists this year.
For those that live local and read or watch the news, look at the number of crimes that involve stealing....way up.
Oil rising has had a negative worldwide effect for every country with exception to those that produce it, they are smiling all the way to the bank and buying them too.

[robbo]

i agree, it does not follow that as prices in cost of living soar in thailand ,so does p4p rates,in months/years ahead thailand may well see significant reduction in p4p tourist numbers,LOS is allready oversubscribed with girls by huge amounts,so fewer customers and greater cost in living for them means they charge more? i dont think so,with so many girls its all too easy for the customer to look around .a consumer product like any other p4p can suffer for lack of demand but not this alone .people in the west wrongly assumed that the housing market would forever just boom as it was a law unto itself.even with demand still high for housing...........prices are falling.

[SukhumvitRoad]

Yeah, get ready for some real action. Poverty is an outstanding aphrodisiac.......

[rossco]

Well inflation is natural but in Thailand they are somewhat protected.

Thailand is self sufficient in food and the majority of the population is not materialistic - the average Thai does not buy cars, motorcycles, plasma TV's, Hifi's, Cameras etc - let alone mortgage houses! A true Western way of paying for luxuries is to re-mortgage their homes - great in a rising market but suicide long term. A wise man once told me that you only 'rent' your home and that to use it as collateral was insane.

Theoretically inflation should be lower in Thailand. Their Gas (Oil) consumption is lower as are their staple goods expenditure.

A NEW Honda Wave (100cc) motorbike is 35K Baht - 500 UKP, 1000 USD, or 700 Euros. Most buy on credit and this is the main form of transportation - imagine if all the Motorbikes, in Pattaya, were cars!

So Inflation is dampened in Thailand. The biggest impact for ex-pats here is the exchange rate - that can seriously dilute fixed non-Thai funds. Interest on deposit here is only about 3%

Living prices have not seriously risen in 2 years. Hotel prices have BUT, because 2 years ago, the Pattaya Hotels decided that they were under charging compared to other resorts - stupid but true!

So any Western economic model does not easily convert to Thailand. All Keynsian experts respond!!!

[stogie bear]

Great post... Lots of food for thought there.

[dummy_plug]

(rossco @ Jul. 20 2008,23:25) Well inflation is natural but in Thailand they are somewhat protected.

Thailand is self sufficient in food and the majority of the population is not materialistic - the average Thai does not buy cars, motorcycles, plasma TV's, Hifi's, Cameras etc - let alone mortgage houses! A true Western way of paying for luxuries is to re-mortgage their homes - great in a rising market but suicide long term. A wise man once told me that you only 'rent' your home and that to use it as collateral was insane.

Theoretically inflation should be lower in Thailand. Their Gas (Oil) consumption is lower as are their staple goods expenditure.

A NEW Honda Wave (100cc) motorbike is 35K Baht - 500 UKP, 1000 USD, or 700 Euros. Most buy on credit and this is the main form of transportation - imagine if all the Motorbikes, in Pattaya, were cars!

So Inflation is dampened in Thailand. The biggest impact for ex-pats here is the exchange rate - that can seriously dilute fixed non-Thai funds. Interest on deposit here is only about 3%

Living prices have not seriously risen in 2 years. Hotel prices have BUT, because 2 years ago, the Pattaya Hotels decided that they were under charging compared to other resorts - stupid but true!

So any Western economic model does not easily convert to Thailand. All Keynsian experts respond!!!

I disagree with you on a few points, but in general, I think your assessment is somewhat accurate.

Firstly, although Thailand is a net exporter of food - they are also a free market society. As global demand rises for their products, it is inevitable that any rice or other food products that remain in-country for sale to citizens rises in price. Supply and demand will set prices in the market and so things such as rice, meat, etc... will rise as well, although in general not as much as global prices would. And actually, since January rice prices in Thailand have more than doubled although recently they have come back down.

Second, as you are correct that the average Thai does not buy so many electronic luxury goods. However, those items are the ones that have come down in price. If you look at laptops, flat-screen TVs, and iPods - those things have gone down in price from two years ago while having more features. Inflation does not really affect the prices of those goods at all. I would say that housing, food, energy (to some degree), and transportation costs amount to the majority of the average Thai budget. As property prices have increased in the past few years, I can only assume that rents have gone up as well (follows logical reason) and obviously Thailand as a net importer of oil, has felt the impact on their transportation costs. Just recently taxi fares were raised and I wouldn't be surprised if the moto-bike boys and buses have also raised prices as well to cope.

In fact, Forbes now forecasts Thai inflation to hit 5%+ this year due to those factors above. Additionally, several other news sites quote the same figures from other economists. At a 5% rate of inflation, they may even have a bigger problem than we do in the US!

http://www.forbes.com/markets/feeds/...fx4950843.html

[stogie bear]

A few points...

Firstly, although Thailand is a net exporter of food - they are also a free market society...

You have been misinformed. The Thai government makes it very difficult and expensive for business to export food, especially just recently. Thailand is a one sided 'free market economy!'

If you look at laptops, flat-screen TVs, and iPods...

That's about all Thais DO do! This affects less than 1% of the population.

As property prices have increased in the past few years, I can only assume that rents have gone up as well...

Where are you getting this information that Thais are paying more for property? Used property is falling and new property remains flat. Has been for years.

Rent is flat but I'd say on balance is falling. In fact you can get more for less these days as Thais demand more basic comforts and amenities.

Thailand as a net importer of oil, has felt the impact on their transportation costs. Just recently taxi fares were raised...

Taxi fares were raised SLIGHTLY for the first time in 10m years! Hardly an inflationary consideration. Motorcycles and 'Song Taos' have all raised their prices slightly but some have tried to raise them too much and they have come right back down as commuters simply won't pay.

Where I was a year ago it went from 5 baht to 10 baht and after a week was down to 7 baht! People simply didn't pay!

In the world outside glitzy hotels and rip off cabs and posh nosh the standard of living is rising slightly as our prices... SLIGHTLY!

This imaginary forecast of 5% includes all spending in Thailand and most of the people who live here don't account for much of that!

[Monkey]

The Thai government makes it very difficult and expensive for business to export food..

I beg to differ on this one Stogie, Thailand exports plenty of food.

Next time you're back in the UK have a look at the Country of Origin label on:

Canned pineapple and canned tuna.
Rice, fish and prawns.
Tapioca products.
Chicken products (sometimes these are labelled as produced in UK but the source meat is from TH)

[katoeylover]

You have been misinformed. The Thai government makes it very difficult and expensive for business to export food, especially just recently. Thailand is a one sided 'free market economy!'

And Prawns and Shrimp. Thai Exports are actually growing quite considerably.

Largest importer to the UK.

The renewed increase in the demand for shrimp caused the prices to
rebound in 1990 which caused commercial interests to shift to
other locations, particularly the Eastern Seaboard and the South.
These areas have also been abused with over production and once
again, many areas, particularly along the Eastern Seaboard, have
been destroyed. With increased production, profits have increased
drastically and shrimp farming was the major factor for Thailand
displacing the United States as the world's top seafood exporter
with total sales of $3.4 billion in 1993. The government has
continued to promote shrimp farming because of its high export
value, ranking fourth as a source of foreign exchange for Thailand
in 1994. Thai shrimp exports have increased to the extent that
they have 40% of the international market.

Top Thai Exports & Imports Sep 3, 2007
Computer accessories & telecommunications equipment lead Thai exports to the U.S. while semiconductors & civilian aircraft are fast-growing Thai imports from America.
With a population of some 65 million, Thailand exported US$22.5 billion worth of merchandise to the United States in 2006, up 13% from 2005 and up 52% in 4 years.
Thai imports from the U.S. rose 12.3% to $8.2 billion in 2006, up 67.7% since 2002.
In terms of the merchandise flow between the two countries, America€™s trade deficit with Thailand was $14.3 billion in 2006, up 44.2% from 2002. The U.S. trade deficit with Thailand increased 13.3% in 2006 €“ up slightly from the 12.7% deficit increase in 2005 from the year earlier.
Thai Exports to U.S.
Of the $22.5 billion in American imports from Thailand in 2006, the following product categories had the highest values.
1. Computer accessories, peripherals & parts €¦ US$3.1 billion (13.9% of Thailand from U.S. imports, up 18.1% from 2005)
2. Telecommunications equipment €¦ $2.1 billion (9.5%, down 23%)
3. Fish & shellfish €¦ $1.8 billion (8.1%, up 18.7%)
4. Televisions, DVD players & other video equipment €¦ $1.5 billion (6.5%, up 16.2%)
5. Cotton apparel & household furnishings €¦ $1.2 billion (5.3%, down 0.4%)
6. Jewellery €¦ $1.2 billion (5.3%, up 14%)
7. Semiconductors & related devices €¦ $928.6 million (4.1%, up 39.2%)
8. Other textile apparel & household furnishings €¦ $709.7 million (3.2%, up 4.3%)
9. Car parts & accessories €¦ $637 million (2.8%, up 30%)
10. Other scientific, medical & hospital equipment €¦ $437.2 million (1.9%, up 1.6%).
Fastest-Growing Thai Exports to U.S.
Below are American imports from Thailand in 2006 with the highest percentage sales increases from 2005.
1. Aluminum €¦ US$5.8 million (up 1,939% from 2005)
2. Tin €¦ $2 million (up 447%)
3. Crude oil €¦ $169.3 million (up 288%)
4. Mining & oil processing equipment €¦ $2.3 million (up 241%)
5. Textile, sewing & leather working equipment €¦ $4.5 million (up 200%).
Thai Imports from U.S.
Of the $8.2 billion in American exports to Thailand in 2006, the following product categories had the highest values.
1. Semiconductors €¦US$1.4 billion (17.5% of Thailand to U.S. exports, down 7.7% from 2005)
2. Civilian aircraft €¦ $899.3 million (11%, up 2014%)
3. Computer accessories €¦ $787 million (9.7%, up 12.7%)
4. Telecommunications equipment €¦ $259.7 million (3.2%, down 35.1%)
5. Other industrial machines €¦ $257.2 million (3.2%, up 2.6%)
6. Electric apparatus €¦ $204.8 million (2.5%, up 0.8%)
7. Plastic materials €¦ $203.4 million (2.5%, up 13.2%)
8. Measuring, testing & control instruments €¦ $177.2 million (2.2%, down 0.6%)
9. Other petroleum products €¦ $172 million (2.1%, up 31.3%)
10. Other chemicals €¦ $160.4 million (2%, up 27.5%).
Fastest-Growing Thai Imports from U.S.
Below are American exports to Thailand in 2006 with the highest percentage sales increases from 2005.
1. Civilian aircraft €¦ $899.3 million (up 2014% from 2005)
2. Parts for military equipment €¦ $51.5 million (up 120%)
3. Iron & steel mill products €¦ $11.9 million (up 105%)
4. Non-metallic minerals €¦ $10.4 million (up 81.3%)
5. Generators & accessories €¦ $65.3 million (up 81%).
Sources for this Article
This article presents independent calculations and insights based on data drawn from the CIA World Factbook and the U.S. Census Bureau €“ Foreign Trade Statistics.