Consumers must brace for more price hikes

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FINANCIAL STRESS
Consumers must brace for more price hikes
By Business Reporters
The Nation 2011-05-09

If fuel costs don't come down, some manufacturers plan to raise prices

Bad news for Thai consumers: palm oil, sugar, soybean oil, eggs and pork have all seen price hikes - and rises for other products are still to come.

The first-quarter headline inflation of 3.01 per cent was mild, based on the BOT forecast of 3-5 per cent for the entire year. More price hikes are on the cards in the remaining months of the year, driven by natural disasters that spark supply shortages, fuel prices that push up transportation costs, as well as the cost of petrochemicals-based raw materials.

According to a survey by The Nation, if fuel prices do not ease and stay above annual average forecasts, some manufacturers are ready to raise prices, probably in the second half of this year. The good news is that competition will discourage some manufacturers from doing so, for fear of losing market share.

Boonchai Chokwatana, chairman of Saha Pathanapibul - a major producer of consumer goods including Mama instant noodles - said that whether the company would need to raise prices would become clearer in the next couple of months.

"We will delay the price adjustment despite the higher raw material costs. During this period, we will focus on absorbing the costs," he said.

Raw materials for instant noodle and cleansing goods, such as detergent, dishwashing liquid and soap, have become more expensive. Instant noodles, palm oil and wheat flour - which account for 80 per cent of total raw material costs - have seen their prices rise sharply since the end of last year. If it becomes unavoidable, Mama prices will be raised from 50 satang to Bt1 per packet.

While admitting that oil prices are affecting the cost of living, Boonchai also urged the government to campaign for a cut in oil consumption. It should also monitor manufacturers and vendors carefully, given that hoarding could drive product prices to exorbitant levels. However, he admitted that the government would need to loosen the grip on some manufacturers who really need to raise their product prices to cope with heavy cost increases.

Vikrant Komalaputra, executive director of the Thai Food Processors' Association, said some food processors had already increased their retail prices. However, most members of the association, who mainly produce canned food, insisted they would maintain the current prices until the end of the first half of the year to ensure minimum impact on consumers.

"We will see if oil prices in the second half create a bigger impact on production costs," he said.

But raising prices is sometimes not the final answer, particularly in fiercely competitive markets like fruit juice.

Chatchai Boonyarat, chairman of Malee Sampran, a major producer of fruit juices, said the company would not increase retail prices despite higher costs of raw materials and transportation. Yet, to survive during this tough time, it will temporarily cut its promotion and advertising budget.

A source from a major Thai seasoning sauce manufacturing firm said competition dictated price movement. As such, the prices would be maintained despite higher raw materials and transportation costs.

According to the Internal Trade Department, electric wire, rubber tyres, lubricants, car batteries and soap are all under close scrutiny, as their prices could be raised soon. The prices of condensed milk, instant coffee, salt, shampoo, hair gel, body power, dish washing liquid, helmets, gypsum, PVC, house paints, agricultural equipment, medicine, student uniforms and electrical appliances could also be raised, but not in the first half of the year, the department said.

Price hikes are not expected to be confined to consumer goods prices, but will also hit some service sectors.

Fortunately, competition ensured that mobile-phone service fees would not be raised soon. A source from Advanced Info Service, the country's largest mobile-phone operator, said rising living costs were not a factor to urge the telecom operators to increase or lower the airtime rates.

Whether the telecom operators adjust service fees depends on competition and service demand. Currently the average airtime rate of cellular services is Bt1 per minute.

However, hotel room rates could rise following a three-year period without rises.

Prakit Chinamourphong, president of the Thai Hotels Association (THA), said hotel operators would increase room rates by an average 5-8 per cent this year, due mainly to higher oil prices.

In recent years, hotels have been unable to raise prices due to lack of demand caused by political problems. Average room rates at luxury hotels in Hong Kong and Singapore have jumped to almost three times the price of those in Bangkok.

Apart from hotels, many airlines are mulling higher fuel surcharges due to higher jet fuel prices. So far this year, Thai Airways International has already adjusted fuel surcharges twice. Thai AirAsia last month also halted the Bangkok-Taipei route due to operating costs.

Werachai Wipatavit, executive vice president sales and marketing and headquarters general manager of Siam Kubota Corporation, said the company would not increase the retail price of its farm machinery this year as it would bring more trouble for farmers who already face higher costs of production.

"Although production costs have increased gradually following higher oil and raw material costs, price increases will be the last option for the firm," he said. "In order to offset lower income, the company plans to rely less on imported spare parts from overseas by using more domestic supplies. The company will also emphasise selling larger volumes as a strategy to boost sales, instead of increasing prices of each product," he said.

At one point, oil prices had risen nearly 30 per cent since the end of last year. The International Monetary Fund recently forecasted global oil prices would average US$107 a barrel this year and US$108 next year, 20 per cent above its previous forecast, due to stronger-than-expected global petroleum growth last year and a less-than-enthusiastic supply response. Notably, the Bank of Thailand forecasts economic growth of 3-5 per cent based on the expectation that Dubai crude will average less than US$100 per barrel this year.

Good news came last week when oil prices plunged thanks to reports that indicated economic weakness in the US and Europe.

Gains in oil prices in New York were limited to 10 per cent. On Friday, crude for June delivery dropped as much as US$5.17 to US$94.63 a barrel in New York.

According to a Bloomberg survey, 15 of 30 analysts, or 50 per cent, forecasted oil would decrease through May 13. Ten respondents, or 33 per cent, predicted prices would increase and five projected little change.

This may soften price pres-|sures, lessening the need for rate increases.