Every month Suan Dusit conducts a political index survey. The benefit of the Suan Dusit political index is that it is (1) nationwide, (2) a large sample size for the survey (6,051 for January), and (3) they ask the same questions each month and this makes it easier to provide a point of comparison.
BP’s plan is to blog the survey results each month – October 2011, November 2011, and December 2011 posts. The survey from December was conducted between January 25-31 (yes, yes, BP has been busy so there has been delay in blogging it). BP has compared the January results with the first four months of Yingluck’s government and the final 4 surveys that BP can find for the Abhisit government so we have a point of comparison (note BP can’t find the surveys for the months of May, June, and July although this could be that Suan Dusit diverted their surveys to election surveys). The points are out of 10:
1. Yingluck had been regaining some of the ground she lost after the floods, but for January this stopped and she dropped .01 (from 5.49 to 5.48) although at the same time the government increased by .01 (5.34 to 5.35). Then, again the opposition has decreased by .06 (from 5.47 to 5.41).
2. The poll signals some problems ahead for the government in regards to the cost of living (down .13), state of economy (down .15), cost of goods (down .24), unemployment problems (down .29) etc. A new ABAC Poll (see also here) – which hope to blog about sometime – states that the policy of the Yingluck government that is the most inconsistent with what the people want (สำหรับนโยบายรัฐบาล น.ส.ยิ่งลักษณ์ที่ยังไม่สอดคล้องกับวาระประชาชนมากที่สุด) is cost of living and cost of goods at 70.1%.
The cost of living increases and inflation problems were, in BP’s opinion were one of the reasons that contributed to the falling support of the Democrats earlier this year and the increased support for Puea Thai – see here, here, and here. With the tensions in the Middle East, oil prices are rising
For more on this Hozefa Topiwalla of Morgan Stanley wrote a report on May 25, 2011 entitled “Thailand Equity Strategy: Initiating Coverage: Fully Valued, Risks to Downside” (not available freely as far as BP is aware). Below are some relevant excerpts:
Within ASEAN, Thailand is most vulnerable to high oil prices, in our view, especially if they are supply-side driven. At 13.6%, the energy-related CPI weight is the highest. Every US$10/bbl increase in the oil price also has a negative effect on the trade balance of 0.9% of GDP.
Bank of Thailand is in the process of normalizing interest rates to control inflation. Our Economist Deyi Tan expects Bank of Thailand to hike policy rate by another 25bps, bringing it to 3.0% by June. Average quarterly inflation isexpected to peak at 3.8%YoY in 2Q11 and average 3.5%YoY for 2011.
Thailand’s CPI inflation is primarily driven by food inflation, which is 8.59% as of April 2011. A combination of rise in global commodity prices and adverse weather conditions domestically has been fueling Thailand’s food inflation
Thailand’s Business Sentiment Index has recovered quite sharply from ‘GFC’ lows and now is at a level which is 4.4% higher than the peak in 2003
A spike in crude oil prices will impair domestic demand as it will fuel further inflation. Overall market performance is likely to suffer, although the energy sector could likely outperform in a demand-led crude oil price spike.
To mitigate such inflation pressures, policymakers have been using a mixture of measures. On the monetary policy front, policymakers have continued to normalise policy rate, raising it by 150bps to 2.75% to soften the potential spillover of non-core inflation into core inflation. On the other hand, fiscal measures have also been implemented (cost-of-living measures and diesel subsidies to cushion disposable income of the lower-income group).
Every 10% increase in oil price will lead to a direct 0.47% addition to headline CPI. The second-round impact in terms of the spillover to utilities and public road transport services can also be “guesstimated” by the weights. The latter two have a weight of 9% so every 10% increase in prices in these segments will lead to 0.9% addition to CPI headline. The impact of 10% increase in oil price from these two segments will likely be lower than 0.9% as energy costs is not the only cost component in these items.
BP: As you can see a minor change in the oil prices has an affect on inflation and, of course, the cost of goods. The cost of LPG and CNG, known in Thailand as NGV, have been rising as the Abhisit and the Yingluck governments have sought to reduce the level of subsidy. The prices of both have been fixed, but with international tensions in the Middle East and large increase of usage over the past years the subsidy has been costing money (as a quick explainer, the government imposes tax on certain fuel products and uses this money to subsidize other fuel products. When there are only a few users of LPG and CNG, this wasn’t such a problem, but because of the low cost more people have switched to using LPG and CNG which means the amount of money needed for the subsidy has increased dramatically).
Also, part of the problem is that the government has extended the exemption of the diesel levy until the end of March at the request of business because of the floods. Although, the government has said with the minimum wage increase in April, subsidies will either need to be reduced or levies reimposed. The government has also, at the same time, exempted levies for 95-octane petrol and 91-octane petrol as per its election promise although it has partially reimposed the levy recently. Ultimately, if the international price increases for many different fuel products and somehow Thai consumers will pay more no matter how the government tries to exempt some levies or subsidize some fuel products. Either directly or indirectly consumers will pay more. Consumers are very sensitive to price increases. Will the minimum wage help the government as with more income price increases becomes less of issue (assuming that the price increases are lesser than the increase in the extra income from the minimum wage)? Or will the minimum wage help further inflation and price rises to the extent that consumers feel worse off? How much debt for the oil fund will the government take on?* These are questions to watch. As with most countries, the economy really matters….
*During the election Puea Thai hinted that they would use the money from concession for petroleum exploration (varies between 40 billion ro 50 billion baht a year, for figures that BP last saw), but can’t see anything recent.