The ministry took into consideration the higher costs producers have been saddled with, said Preecha Laohapongchana, caretaker deputy commerce minister.

Previously, leading soft-drink producers - including Pepsi and Coca-Cola - had proposed an increase of Bt1.50 for small bottles and Bt3 for bottles larger than one-litre.

The ministry instead approved a Bt1 jump for all sizes, saying it was concerned consumers may be too affected by a big jump in prices.

Manufacturers said costs had risen Bt3.57 per litre.

They said the cost of transportation as well as sugar had gradually increased since last year.

Consumers should accept the higher price, said Preecha.

"We cannot freeze prices for all goods because manufacturers face higher operating costs," he said.

Somkid Jatusripitak, caretaker deputy prime minister and commerce minister, discounted concerns that allowing some price hikes would stoke inflation. He argued that only non-essential goods had received approvals.

He said that inflation should not break the target of 3.5 to 4.5 per cent this year.

"The ministry has to allow for some price increases if producers can prove the cost of raw materials, transportation and fuel had affected their costs," said Somkid.

According to the ministry's Bureau of Trade and Economics, the price increase for soft drinks would contribute just 0.05 percentage points to inflation.

Soft drinks are one of 37 products on a list of goods that are under the control of the Internal Trade Department.

The Bt1 price hike was the first in eight years for soda pop.

"We thank the authorities for allowing us to raise prices, which will help ease the burden of producers. However, the flat increase of Bt1 for all sizes will only bring short term benefits to manufacturers," said an industry source who asked for anonymity.

He said the increment would provide only a temporary respite for producers.

"We have not been allowed to raise prices on Coca-Cola for eight years, because our prices are strictly controlled by the Commerce Ministry," Pornwut Sarasin, vice chairman of Thai Pure Drinks said earlier.

"Soft drinks are considered a luxury product by the Finance Ministry. As such, they impose a 21-per-cent excise tax on them," Pornwut said.

The company has asked the Commerce Ministry for permission to raise prices every year over the past five years.

He said the pleas were made in order to offset higher transportation and production costs.

Pornwut said local sugar prices did not reflect real market prices because they are controlled by local groups under the state quota system. But the country's sugar prices are still about half of what they are in the world market, again, thanks to strict government price controls that have resulted in much sugar being smuggled outside of the country.

He said his company was suffering because it was unable to raise prices, forcing it to cut other expenses and find ways to improve efficiency in its factory.

Petchanet Pratruangkrai,

Kwanchai Rungfapaisarn

The Nation