THAILAND

Forecast unchangedin spite of oil spike

Oil price fluctuations have not yet altered this year's inflation forecast in a range of 3.3% and 3.8%, but the private sector is worried rising energy costs and higher wages will eventually push up goods prices.

Yanyong Phuangrach, permanent secretary of the Commerce Ministry, said the oil price volatility would impact the inflation by only 0.05%, a level hardly affecting the annual rate.

However, it will add to the costs of some products such as construction materials, cement and steel of which prices the ministry will closely monitor.

The ministry earlier based its inflation target for 2012 on the assumption that Dubai's crude oil price stays at US$95-115 a barrel and the exchange rate for the whole year at 29.33 baht a dollar.

Thanks to government relief measures to help consumers cope with the higher cost of living, the inflation for the first quarter is projected between 3.65% and 3.75%, higher than the same period last year.

Four key risks are influencing the prices: local politics; the global economy, especially in Europe and the unstable situation in Arab countries; natural disasters which will impact farm prices; and the fluctuation of the global exchange rates and the uncertainty of interest-rate trends.

The Bank of Thailand's domestic director, Methee Supapongse agreed that the oil prices should not be a serious pressure for inflation and domestic economy, thanks to the global economic slowdown.

Mr Methee said that the current sharp rise of crude oil prices should be a short-term sentiment but the sluggish US economy and the euro zone that has yet resolved, would erode crude demand, resulting in fuels prices declined. However, the BoT is closely monitored external and internal factors to ensure its monetary policy adjusting properly.

Thanit Sorat, vice-president of the Federation of Thai Industries, is worried more about the domestic situation than the external factors. In his view, the government should adjust the energy prices and wages gradually. In the wake of the twin impact, the private sector will be unable to adjust themselves, leaving them with no choice but to raise their product prices.

Meanwhile, the Commerce Ministry will propose the cabinet to add eight items and one service to the price control list while removing seven items, resulting in a total of 39 goods items and three services under the list.

Deputy Commerce Minister Poom Sarapol said the prices of farm products in high demand during the Chinese New Year such as pork, chicken and orange are lower than last year.