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Official dilemma as cost of living rises

Lower-middle-income earners will be the ones most affected by the rising cost of living next year and the government's price-control measures will be their only hope of sheltering from its full impact.

Published on December 18, 2007

That impact has already been obvious for some months.

Porn, 40, a somtam vendor in Sukhumvit Soi 119, has time these days to take a nap behind her stall. She has fewer buyers and her income has fallen, although the Thai-style salad remains popular. The ingredients for Porn's somtam have increased in price by Bt3 to Bt10 per kilogram or per pack. For instance, the price of plastic bags has risen from Bt35 to Bt40 per pack.

"I've shouldered increasing costs while consumers are more careful in spending their money. The number of consumers visiting my stall has fallen sharply," she said.

Vendors and people on low incomes will be unable to survive in these conditions, she said. To meet the cost of her son's education, Porn is offering her house in Kalasin for sale.

Kanyanat Ongpichetmetha, 40, a housewife, said the government should continue with price controls to alleviate people's problems.

"Prices of all goods are rising but incomes have not yet changed," she said, adding that price controls are the only thing shielding consumers.

However, the Commerce Ministry is expected soon to allow more manufacturers to increase the retail prices of their goods to offset rising production costs, which have been driven by high oil prices. Early this month, the ministry's Internal Trade Department permitted an increase in the price of vegetable oil (palm oil and soybean oil) and farm gate prices for pigs.

Moreover, the country's leading brand of instant noodles, Mama, will increase its price by Bt1 per pack early next year. Mama noodles are recognised as one of Thailand's economic indicators, as a food of poor people.

Some goods that are on a priority list for consideration of price adjustment include vehicle tyres, batteries and powdered milk. Many other consumer goods have joined a growing line-up seeking the department's permission to increase their prices.

Meanwhile, the department is planning to extend its list of goods subject to price controls, aiming to ensure that manufacturers can only increase their prices after lifting their quality.

The Federation of Thai Industries estimated recently that retail prices would increase by an average of 10 to 30 per cent next year. The department has confirmed that producers are asking for price hikes ranging from 5 per cent to 30 per cent. However, some have proposed increases as high as 70 per cent.

At present, the department has about 370 products on its price-control list. It also has 150 products on a watch list, and it keeps their prices under close scrutiny. Manufacturers of about 588 items in 14 categories on the price-control list have sought permission to increase their retail prices. All of them cite increasing costs of production.

Over the past two years, the government has rarely allowed price increases for products on its price-control list. However, the situation has changed. Huge increases in oil prices over the past year have driven production costs up significantly.

The current production-cost standard that is used by the department for reference is based on a retail price of Bt17 to Bt18 per litre for diesel. That was in 2005. It has now jumped to Bt30 per litre. As a result, many manufacturers are demanding the relief of higher prices.

Internal Trade Department director-general Yangyong Phuangrach said the government must seriously control the prices of goods to protect consumers from unfair practices by manufacturers.

On the other hand, it must also be concerned about the survival of private manufacturers. If price controls are too stringent, manufacturers might not be able to stay in business, he said.

"The government will seriously consider allowing some price increases," he said. "Based on reasonable, fair and gradual conditions, the ministry will consider allowing price increases, but this may not take effect until next year."

Although the government says it will only allow the price of goods to increase after New Year, to ensure a reduced impact on consumers, many manufacturers have already gone ahead, and prices have been rising since December 1. They point out that producers of consumer goods are facing losses because of skyrocketing oil prices and rising costs of major raw materials.

Federation of Thai Industries chairman Santi Vilassakdanont said many consumer goods manufacturers would register big losses from higher production costs.

"To ensure that manufacturers can survive, the government may need to allow price increases for some products," he said.

Board of Trade vice chairman Pongsak Assakul said enterprises were facing more difficulties as oil prices continued to climb. The price was expected to reach US$100 (Bt3,400) per barrel early next year.

He said the government's long price-freezing measures should be lifted for some products, because companies would be unable to bear the burden into next year.

However, most consumers demand a continuation of stringent price controls while the country's economic growth remains slow.

A government official said the price-control policy was an efficient tool for the moment, to help consumers during the economic slowdown.

Without price controls, consumers may suffer more because the market will belong to the largest manufacturers rather than performing according to market mechanisms, as often claimed by private sector companies. If the leading producers in any segment of consumer goods increase their prices, other manufacturers will take the opportunity to raise their prices rather than maintaining lower prices for the sake of competition, the official said.

Any measures, including price controls, must balance the benefits to all those involved, he said. Nobody could tell whether such measures should be continued or cancelled, but the government had to ensure that any measures efficiently took care of the interests of a majority of the population rather than just one minor group.

The official said that while price controls may be good in principle for the general public, there were some details lacking in the information given to the public. Consumers deserved to know what the government regarded as maximum prices for goods under its price controls.

At present, it said only that it was imposing price controls to help consumers. It had never given maximum prices beyond which manufacturers should not go. Producers were only controlled in as much as their goods were included on price control lists.

Unfortunately, he said, many manufacturers had already taken advantage of this flaw to increase retail prices before next year. They had increased their prices using many methods, including adjusting package sizes and reducing product quantity, and the government hardly knew of these practices.

The official said price-control policy must be more stringent or rising costs of living would destroy consumer confidence, and weak consumer confidence would continue to harm the country's economic growth.

Achara Pongvutitham,

 Petchanet Pratruangkrai

 The Nation


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