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Businesses expect inflation to linger
Bangkok Post – 13 August 2008
POST REPORTERS
A business survey by the Bank of Thailand shows that entrepreneurs widely expect inflation to remain high over the next 12 months.
The central bank said in a recent report on business trends that half of the 500 medium- to large-sized firms surveyed for the Business Sentiment Index (BSI) as of May expected production cost to increase by 6% over the next 12 months. And 40% expected inflation to be above 6% over the same period.
''Economic theory shows that expectations could affect inflation through wage negotiations and price-setting by entrepreneurs,'' the central bank said in the report.
The report also quoted a separate survey of 340 firms with 40% expecting production costs to increase dramatically over the next year, led by raw materials (32%), followed by energy (24%), labour (23%), transport (15%) and interest rates (6%).
The remaining 60% of firms recorded a significant increase in product costs in the past year. However, most of the firms made up less than half of the increase in production cost through raised prices because of fixed contracts, the Commerce Ministry's price control policy and high competition, the report said.
The survey showed that most firms anticipated the constraints to allow them to increase price by less than half of the increase in production cost in the future.
The report also said the business sector expected domestic consumption to decelerate in the second half of the year in line with weakening confidence. Domestic consumption and private investment slowed down in the second quarter of the year due to concerns with inflationary pressure and a rise in oil and raw material prices.
The property sector expanded in the first half of 2008, thanks to government incentives in tax and registration fees. The sector is expected to taper off in the latter half of the year because of increasing raw material prices. Demand for condominiums is expected to hold up in the same period because of their convenience for commuters heading to inner Bangkok.
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