Weakening baht could lead to higher goods prices as import costs rise

Economy January 04, 2014 00:00

By Petchanet Pratruangkrai

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Traders and the Commerce Ministry are concerned that, if prolonged, the continued weakening of the baht could result in a rise in goods prices in the near future, as higher import costs feed through into production costs.

Santichai Santawanpas, deputy director-general of the Internal Trade Department, yesterday said the agency was closely monitoring the production costs of many goods likely to be hit hardest by the depreciating baht.
Products that are at particularly high risk are those made from steel, copper, zinc and other metals, including electrical wire, as well as fertiliser.
Traders in those sectors are likely to ask for price increases soon by citing the rising cost of imports, he said. 
The department will carefully consider each company’s cost structure before deciding whether to allow a price increase. However, there will likely be no such increases in the next few weeks, as producers normally have sufficient buffer stocks to last one to two months, he explained.
The department chief said that if the baht kept on weakening over the next two to three months, the ministry might need to allow price increases for some products.
Besides the weakening baht, increases in electricity and fuel prices could also contribute to rises in some goods prices.
However, he said most consumer-goods prices should be unchanged in the current quarter, as there was tough competition in the market amid the country’s slower economic growth.
Meanwhile, the department reported that the prices of feed meal and pesticides had fallen since late last year, thanks to lower production costs.
Vallop Vitanakorn, vice chairman of the Thai National Shippers Council, yesterday said those domestic manufacturers that rely on raw-material imports would be hit hardest by the baht’s depreciation.
“Certainly, the export sector is delighted with the weakening baht. But the Bank of Thailand needs to balance benefits between the import and export sectors, as consumers and local traders could be hit hard if goods prices and energy costs increase,” he said.
Domestic trading has been sluggish, he said, but added that while import and production costs had risen, traders could not increase their prices because of weak consumer spending power. Moreover, he suggested producers and traders should take a cautious approach and buy currency on the forward market amid the uncertain Thai political situation, as the baht was likely to fluctuate significantly. 
Although the unit has weakened rapidly, it could just as easily appreciate quickly, he stressed.