The Commerce Ministry froze the price of essential goods before floating the price of diesel last July. The measure was put in place to curb inflation, which despite the price freeze, hit 6.2 per cent in May.

Part of the problem is that the price of diesel, which is the main fuel used by manufacturing and transportation companies hit a new record high of Bt27.92 per litre yesterday. This spells trouble for manufacturers.

Thanawat Polvichai, director of the Economics and Business Forecasting Centre of Thai Chamber of Commerce University, said the time was appropriate for the government to allow the prices of goods to float. "Escalating oil prices have directly affected manufacturers and the government's price control measures will also damage the country's trade and economic system," he said.

The centre predicted that the country's inflation will not exceed 5 per cent if oil hovers around US$75-$78 (Bt2,862-Bt2,976) per barrel but if it escalates to more than $80 per barrel, inflation will increase to 5.5 per cent.

That is compared with the Commerce Ministry, which estimates that inflation will be 6 per cent this year if the oil price averages $80 per barrel and 4.5 per cent if hovers around $65-$69 per barrel.

"Consumers should allow manufacturers to float retail prices, slowly and steadily. They will not be able to make ends meet if the government restricts them with such stringent measures," Thanawat said.

The policy could force manufacturers to reduce expenses by downsizing.

Or in the worst-case scenario, they would have to shut down their businesses.

This will create a domino effect on consumer purchasing power and finally the Kingdom's economic growth.

Prasatna Ekboonkate, chief executive of Saha Farm, said the ministry should prioritise which goods are important. "The government should not be afraid of overpricing as market mechanisms will help control prices," she said.

Tan Passakornatee, chief executive of Oishi Green tea, said that consumers would be protected by market mechanisms if product prices were allowed to ebb and flow freely.

In addition, tough competition will force manufacturers to price their products fairly to maintain sales and market share.

"I support the government's policy to allow a free flow of product prices because manufacturers understand that increases in price would scare away customers," said Tan.

Arb Nakajud, an economics lecturer at Kasetsart University, suggested that goods hardest hit by the rising oil price should be allowed to raise prices first followed by goods affected by transportation costs.

"Consumers are often able to manage their incomes to cope with price increases," he said.

The Commerce Ministry has not yet decided which manufacturers will be allowed to raise prices, according to a ministry source, who asked for anonymity.

The ministry knows that oil prices have affected production and transportation costs, between $65 and $69 per barrel, and inflation should not exceed than 4.5 per cent for the whole year.

Petchanet Pratruangkrai

The Nation