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6 May 2008

Thai Economy

Inflation and Wage Increases: Impact on Thai Business (Business Brief No.2154)

คะแนนเฉลี่ย
Based on the Ministry of Commerce's May Headline Inflation that exhibited a 23-month high of 6.2 percent and possible increases in commodity prices by traders who have been keeping their product prices unchanged, KASIKORN RESEARCH CENTER (KReseach) projects that the average inflation rate for 2008 may increase to a range of 5.0-5.8 percent over the 2.3 percent seen last year.
Taking the inflation figures of April 2008 into consideration, it is evident that the strongest price increases were seen in fresh foods, transportation and communication, which are considered indispensable for consumers. Low-income earners are the most affected as they spend almost all their income on necessities. This led to a call by many groups of workers for pay increases.
On May 2, the Central Wage Committee approved mid-year minimum wage increases by locality by a range between THB2.00-11.00, effective June 1, 2008. The move was intended to help ease workers' burdens, but this will also drive up production costs in the business sectors. KResearch has conducted a study on the impact of pay increases on various economic sectors and the findings are summarized as follows:
- The agricultural and service sectors constitute large proportions of labor costs than the industrial sector. Labor cost in the industrial sector accounts for 9.1% of the total costs, well below the 13.8% of an average labor cost within the entire Thai economic system. Labor cost in the agricultural sector is 15.5%, compared with an average labor cost at 18.6 percent in service industry.
- Several agricultural sectors are now enjoying the unprecedented high prices, which will offset impacts on their net income. Other economic sectors are under pressure by meager demand and intense market competition, which will limit chances for price increase.
- Businesses that are likely to be most affected by wage increases include transportation, footwear, mining, furniture, hotels, entertainment, recreation services, retail and fisheries.
- Businesses that are likely to be moderately affected by wage increases include ceramic tiles, cement, concrete, textiles, garments, fashion accessories, leather products, ornaments, machinery, construction, food products, canned and processed food products, restaurants and services.
- Businesses that are likely to be marginally affected by wage increases include automotive, electrical appliances, office equipment, steel, vegetable oils, animal lard, animal feed, and oil & gas refineries.
Any economic policy implementation to address certain problems associated with the higher community prices should take into consideration all subsequent impacts. Wage increases in accordance with commodity prices may affect production costs, and other consequences may follow. Some entrepreneurs, unable to shoulder the rising production costs, may end up raising prices of goods once again, which will result in higher inflationary pressures. Some entrepreneurs, under constraints for price increases, may experience the lower profit margins, which, in turn, will affect their financial standing. This may have eventual effects on wage payments to their employees, business tax payment, investment, or even consumption and the overall economic expansion of the country.

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Thai Economy