Inflation 'likely even higher' in '09

Raging inflation could be worse next year and stay in double-digit territory as businesses would be under pressure to adjust costs and raise prices after they have depleted their inventories, a leading economist warned

yesterday.

Virabongsa Ramangkura, a former deputy prime minister, said that even if oil prices stay at US$120 (Bt4,000) to $150 per barrel next year, inflation will continue to rise into double figures.

"I believe that inflation will continue to rise and it will stay at the double-digit figure next year. This year it might touch 10 per cent or slightly more. But next year it will rise even further as businesses have to adjust their costs after using up their inventories," he said.

The inflationary pressure is compelling many businesses to embark on drastic restructuring of their operations to cope with the high-cost environment.

"It's a bad period, particularly for weak companies. Even major companies would need to evaluate their basic functions and streamline their businesses to save costs," Pornwut Sarasin, vice chairman of local Coca-Cola bottler Thai Namthip, said yesterday.

The airline business, for instance, had scaled down operations by grounding long-haul, loss-making routes, he said. Most of the budget airlines were now suffering losses and might go belly up.

"The soft-drink industry has been rocked by the rampant inflation as we rely heavily on transportation and sugar, whose prices are influenced greatly by inflation. Everything in the production process is connected to the use of energy," he said.

The price of sugar had jumped by about 38 per cent this year.

"So far, we have no absolute solution to cope with this high inflation. What we have done is to solve the problem point by point," he said.

Tos Chirathivat, CEO of Central Retail Corp, said the current inflation rate was quite acceptable.

"My feeling is that inflation is better than deflation," he said.

Thailand had let its currency depreciate in 1997 and since then, inflation has been very low and everything was under the control of the government.

"I agree with the price increases of agricultural products, particularly rice, as they in turn will lead to higher income for farmers," he said.

"Individual farmers, however, should take full advantage of the rising prices of agricultural goods," he added.

Belt-tightening by middle-class consumers hammered by red-hot inflation has created winners and losers among firms catering to them.

"I'll be quite satisfied if we can achieve growth of 5 or 6 per cent this year," said Boonsithi Chokwatana, chairman of Saha Group, the country's leading manufacturing and trading conglomerate.

His target is in line with the sharp drop of more than 10 per cent in sales of branded apparel and footwear.

He said mismanagement by the government in trying to push up the interest rate to counter inflation would severely erode the purchasing power of consumers.

The baht's appreciation, on the other hand, would destroy exports and crush the incomes of people, particularly among the grass roots, he said.