elef Posted June 7, 2008 Report Share Posted June 7, 2008 The Nation Today Link Inflation seen peaking in Q3, warning over 2nd-round effect By Siriporn Chanjindamanee, Wichit Chaitrong The Nation Published on June 7, 2008 Headline inflation is likely to peak in the third quarter and is expected to rise to 8.3 per cent or higher this month after reaching a 10-year high of 7.6 per cent in May, according to Prapas Tonpibulsak, chief investment officer of Ayudhya Fund Management. He said yesterday that the inflation rate this month might be higher than the expected 8.3 per cent as the price of US light sweet crude had surged above the previous assumption of US$120 (Bt3,970) a barrel. If average oil prices rise to $130 per barrel, the inflation rate in Thailand will be higher than 9 per cent before peaking in the third quarter, Prapas said. He added that foreign fund-managers in Europe and the United States were studying the possibility and impact of the depreciation of the Vietnamese dong. The premiums of currency swap and one-year bond yields have risen by more than 40 per cent, which is a record high. The global market has been expecting the depreciation of the dong, since the Vietnamese economy has been sluggish. Its stock market recently plummeted from more than 1,000 points to 400 points. "The Vietnamese dong is the hot issue we need to monitor, but I think it won't be as serious as the 1997 financial crisis as Vietnam doesn't have much in foreign debts. Most of the inflows have been direct investment," he said. He added that if the dong needed to depreciate, it would affect Asian currencies, including the baht. He predicted that the baht might fall to Bt34 per dollar if the dong depreciated. Prasarn Trairatvorakul, president of Kasikornbank, said inflation was rising because of cost-push, not demand-pull factors, so increased interest rates could have an influence. Aware of this, the Monetary Policy Committee might not increase the policy interest rate too much, he said. Meanwhile, Deepak Bhattasali, lead economist at the World Bank, suggested Thailand and other countries needed to balance monetary polices to both deal with inflationary pressure and maintain export competition. Countries in Asia do not want to appreciate exchange rates because they want to support export industries, he said. Global economists warned yesterday that second-round inflation effects - rising prices for goods and wages across the board - would be become a major threat to the Thai economy and those of other developing countries. The first-round effect of inflation caused by sharply rising fuel and food prices will soften next year, but a second-round effect is more dangerous, said Hans Timmer, manager of the World Bank's Development Prospects Group. "If inflationary pressure builds it causes rising prices of goods, services and wages, in turn causing inflation to spiral upward." Timmer suggested countries that had a current-account surplus should appreciate their currencies while countries that had previously implemented loose monetary policy should tighten those policies. Thailand and other Asian countries have run current-account surpluses for many years, while countries such as Argentina and Bolivia have run expansionary policies. Stronger currencies would allow cheap imported goods and capital for investment in bottleneck infrastructure, and that plays a part in pushing inflation up, as with inefficiency in transport systems, he said. However, he admitted that there were no clear-cut answers to problems in all countries as they each faced different circumstances. Romuald Semblat, senior economist at the International Monetary Fund, suggested that policies were needed to prevent second-round inflation and dampen inflationary expectations. He advised the removal of subsidies on oil prices, allowing high oil prices to pass through to consumers to encourage energy conservation and efficiency. "At the same time, the most vulnerable groups should benefit from well-targeted policy support," he said. He went further and said that countries should reduce their levels of protection and subsidies for biofuel production in order to prevent further increases in the prices of food products. Link to comment Share on other sites More sharing options...
elef Posted June 7, 2008 Author Report Share Posted June 7, 2008 So either 1 dollar 34 or 30.... IMO 30! Link to comment Share on other sites More sharing options...
drogon Posted June 7, 2008 Report Share Posted June 7, 2008 This is the funny thing about economy analysts... they do not usually put themselves under fire and more often than not -> they tend to disagree. So Elef, let's bet, I guess we will as good a job as them to predict the future trend of our respective currencies. In 5-6 months. $: will be 35 £: will be 67 Euro: Will be 46 Link to comment Share on other sites More sharing options...
elef Posted June 7, 2008 Author Report Share Posted June 7, 2008 OK, In 5-6 months. $: will be 30 £: will be 70 Euro: Will be 55 Link to comment Share on other sites More sharing options...
drogon Posted June 7, 2008 Report Share Posted June 7, 2008 Interesting You think the dollar will stay low compared to the bht, why? Pound: I am not sure with the current state of the UK economy that it will go so high Euro: I definitely think that it will go low as the BCE will probably lower their rates by the end of the year (provided inflation in euro zone goes down) I would like the euro to remain at 50-51 but I do not dream Link to comment Share on other sites More sharing options...
elef Posted June 7, 2008 Author Report Share Posted June 7, 2008 IMO the dollar will be weak as long as Bush is president and the war in Iraq is going on. The change against the dollar will be limited by BoT because of pressure from exporters, so other currencies will in IMO be coming up. All depends of course of the time horizon. A year from now maybe the dollar is 35 baht and the oil price 70-80 USD. Link to comment Share on other sites More sharing options...
drogon Posted June 7, 2008 Report Share Posted June 7, 2008 Interesting. Oil price 70-80??? Link to comment Share on other sites More sharing options...
elef Posted June 7, 2008 Author Report Share Posted June 7, 2008 The present oil price is a combination of speculation and everything from overheated to still growth in many countries, from Q3 2008 will recession in USA and lower growth in other countries cause lower demand. Link to comment Share on other sites More sharing options...
drogon Posted June 7, 2008 Report Share Posted June 7, 2008 You really think speculation will soften... I hope too Link to comment Share on other sites More sharing options...
bibblies Posted June 7, 2008 Report Share Posted June 7, 2008 The present oil price is a combination of speculation and everything from overheated to still growth in many countries, from Q3 2008 will recession in USA and lower growth in other countries cause lower demand. You think so? I think it's more speculation than anything. Look at financial news today and yesterday with pundits only NOW giving fundamental reasons as to why the oil price should be so high. China, India, high demand, possible war in Iran, etc. Now ask yourself if any of these fundamental reasons WEREN'T present and known 3 days ago, before oil shot up from $123 to a new record $138. In fact, BECAUSE oil had slumped from $135 to around $120, commentators had previously been pointing to slowing demand! There's a lot of speculation in that price, I think. Bibblies, bitter because he'd vowed to buy oil if it went down to $123 and did, three times, but didn't hold on long enough (mainly because he kept getting distracted by the demands of Mr Happy Mr Happy's to blame for a lot of things! ) Link to comment Share on other sites More sharing options...
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