Poorest still hardest hit by inflation

Low-income earners remain the hardest hit by rising inflation, as their financial situation has not been substantially helped by rising prices for agricultural goods and the minimum-wage adjustment.

So says a recent survey by the Bank of Thailand (BOT).

The central bank yesterday said that although higher prices for farm goods and the minimum-wage adjustment had reduced their debt pressures, soaring oil prices and the escalating cost of living remained risk factors for households in the agricultural and labour sectors.

These low-income households have a high ratio of total debts to income and lofty monthly debt burdens. Moreover, their expenses exceed their incomes, and they have low accumulations of financial assets.

The BOT study found that soaring oil and food prices were having a greater affect on low-income households relative to higher-income groups. As a result, low-income households have been left with insufficient income to pay existing debts, intensifying their debt problems. "Their ability to pay debts is minimal, which spurs the risk of debt problems when they face economic troubles," the bank's report said.

The study, which divides households into four groups, found that low-income households had the highest debt-to-income ratio: 7.3. That group has an average monthly income of Bt4,342 and average debt of Bt32,000. This indicates they have prolonged negative saving problems.

Moreover, low-income households have higher debt burdens than do the other groups, because their principal and interest payments account for 35 per cent of monthly income, compared with 25 per cent for the other groups. Commercial banks consider monthly installments amounting to 30-40 per cent of monthly income to be manageable, the report said.

"The concern is the low-income group's savings are likely to be increasingly negative, along with those of the moderate- and high-income groups," it said.

Declining saving amid accelerating costs of living will lead households to borrow more, and without sound management this will create a fragile ability to repay debts in the future.

The BOT said economic uncertainty was a factor adding to the debt problem. The survey found 40 per cent of low-income households had encountered economic problems resulting in an even lower ability to pay debts.

The low-income group in the agricultural sector includes 47.15 per cent of all farmers, or 11.12 per cent of all households.

Low-income households account for 60 per cent of the labour sector. More than 31 per cent of these people have borrowed from loan sharks, the central bank said.