Ok first the figures:
The Ministry of Commerce reported March inflation at 3.45% YoY, increasing from 3.35%YoY in February. On a monthly basis, the March CPI surged for a third month by 0.59% MoM. The key inflation drivers remained the food and energy categories; as food and beverage prices (33% of the CPI basket) increased significantly 0.66% MoM, especially the rise in vegetables and fruit, eggs and processed food from the drought Transportation and communication prices (26.8%) surged by 1.12% MoM due to the 3.83% MoM rise in domestic retail fuel prices with the impact from the re-instated government oil fund collections.
The March core inflation (excluding food and energy) rose to 2.77% YoY from 2.72% YoY in February and higher than the market estimate of 2.64% YoY. The PPI was flat at 1.82% YoY, the lowest in 30 months.
Now so what?
What I’m far more interested in is what the impact on inflation will be given that the minimum wage has increased as of 1st April to THB 300 / day in Bangkok, surrounding areas and in Phuket, along with a 39.5% rise in wages in the other provinces. Analysts have said that the new minimum wage impact is expected to be less severe than initially expected because the rate will only affect 1.3mn workers from the total labour pool in Thailand which is 37.9 mn. Taxi drivers, merchants, farmers will receive no benefit from this wage policy.
This wage increase policy may have its critics but life in Thailand is more expensive that it was 5 years ago, the prices of basic foods have increased faster than inflation, transportation is more costly, if this wage increase never came social unrest would’ve been a real possibility.
I can foresee several things changing though for the business structure in Thailand, companies will have be far more efficient with their resources, unemployment will rise in Bangkok, and sales prices will increase. What type of companies will benefit from this? The retailers primarily, within the next few months before the cost-push inflation kicks in from rising prices there will be additional consumer purchasing power, who loses the most from this? Any businesses that are highly labour intensive, basic low-value added manufacturing will be hurt tremendously.
So going forward I think inflation for Thailand will surprise to the upside, above what analysts and economists are predicting, and once the BOT sees this in the economic figures in late 3Q12 or early 4Q12, I fully expect for interest rates to begin rising.