LABOUR
PARISTA YUTHAMANOP
The new increase in minimum wages throughout the country is unlikely to boost inflation as the increases remain just below expected inflation rates, according to Amara Sriphayak, senior director for the Bank of Thailand's Domestic Economy Department.
The central bank noticed that headline inflation, which reached a two-year record of 6.2% in April, has accelerated from before as seasonally adjusted month-on-month inflation rose 0.6%, double the 0.3% pace a few months ago.
''The impact from the increase in oil and food prices has sunk into the economy fairly strongly. We have started to see that, in April, the price increase has been fed by the demand side with rising prices of eat-out meals,'' Dr Amara said.
The tripartite wage committee yesterday agreed to raise minimum wages in Greater Bangkok and key provinces by nine baht to 203 baht per day, effective in June. Wage increases elsewhere range from two to 11 baht per day depending on the province, based on 5% inflation.
A rise of nine baht in the minimum wage represents an increase of 4.6% from the end of April and 6.3% since the beginning of the year, when the minimum wage stood at 191 baht.
''The increase is wages is still below inflation. It will help reduce the burden from rising costs of living on labourers who are not included in the stimulus tax measures while assuring producers of demand,'' Dr Amara said.
In its latest revision, the central bank raised its headline inflation forecast to a range of 4-5%, up from 2.8% to 4%, as it expected price increases to level off in the latter half of the year. It has also raised the forecast for core inflation, which removes raw food and energy costs, to 1.5-2.5% from 1.3-2.3%.
Dr Amara said April inflation had exceeded the central bank's base-case forecast but remained within the worst-case scenario. The Dubai oil price averaged $103 per barrel in April, under the top-range assumption of $107. In addition, food commodities have approached the highest assumption.
''Inflation of 6% is below our forecast. It should remain so if the oil price does not rise significantly from the present level,'' she said. ''There is no imminent pressure from the demand side due to the wage hike.''
The increase in core inflation will hinge on strength in domestic demand to meet price increases, Dr Amara said, adding that the economy was estimated to have grown by 6% in the first quarter, up from 5.7% in the fourth quarter of 2007.
The central bank has revised its 2008 economic growth forecast upward to a range of 4.8% to 6% from 4.5% to 6% and maintained a forecast of 4-6% in 2009. Its monetary policy targets core inflation at 3.5%.
''Whether the interest rate should be moved or not depends on demand. There has not been signs of overheating in the economy until 2009, based on our forecast,'' Dr Amara said.
The oil price increase is linked to dollar depreciation, which has been driven by Fed rate cuts, she said.
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