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Published on January 30, 2008

It is concerned that low-income earners will be affected by rising oil prices because such workers have high transport and oil-related expenses compared with their incomes.

The central bank forecast that Chinese demand for energy and steel would increase incessantly.

High demand remains for agricultural raw materials used for producing alternative energy, it said.

Continued increases in commodity prices over the past five years have put pressure on global prices. The commodity price index rose only 1.8 per cent in 2000 but surged 21.4 per cent last year due to increases in the cost of oil, food and metal.

"The global economy this year is likely to slow down because of the US economic slowdown. But continued growth of emerging countries, particularly China and India, and demand growth for raw materials for producing alternative energy are the factors to push commodity prices up continuously," said the BOT's inflation report released last Friday.

Energy prices had a huge impact on global inflation before slowing down since the end of 2005. Food prices have increased since the middle of 2005 and have led to higher inflation in the global economy.

The Organisation of the Petroleum Exporting Countries (Opec) expects high oil prices to continue this year because of constant growth of demand to the current level of 87.06 million barrels a day, 1.32 million higher than last year.

Opec also forecast supply would be slightly higher than demand at 88.04 million barrels a day. Supply has increased marginally due to the slow progress of exploration.

"Low excess supply would result in continued high prices and volatility of global crude oil," the report said.

The Monetary Policy Committee believes the Thai economy will continue to grow, as inflation should not rise at a worrying pace. This assumes the oil price in the Dubai market will average US$85 (Bt2,809) to $86 per barrel.

If the oil price increases by 1 per cent, headline inflation would rise immediately by 0.02 per cent and by 0.06 per cent in each of the next four quarters, according to the report.

The hike would also cause economic growth to contract by 0.01 per cent immediately and by 0.06 per cent in each of the next four quarters.

The report said the manufacturing sector had been only slightly affected by rising oil prices because oil costs for most companies were lower than 10 per cent of total costs. Companies use oil for transportation rather than as a raw material for production.

However, those depending on chemical raw materials will be most affected because of the high prices of oil-based products.

According to the report, the agricultural sector could not avoid higher costs.

Anoma Srisukkasem

The Nation