31/01/2012 (The Nation) - Tackling a sharp rise in the cost of living is expected to be a key challenge for the government this year, as a host of pressures threaten to lead to the marking up of goods prices.

Almost 60 per cent of respondents in a survey by the Economic and Business Forecasting Centre expected consumer-goods prices to be hiked this year.

The cost of living is their priority concern for 2012 amid gloomy economic prospects following last year's floods and a slowdown in global growth.

Raising the daily minimum wage to Bt300 in April from the current level of Bt215 will be a crucial challenge for the government in terms of how to increase its management efficiency to balance benefits for both manufacturers and consumers.

Moreover, several factors will push consumer prices higher, not least natural disasters causing uncertainty in the supply of agricultural produce.

Pornsilp Patcharintanakul, chairman of the Board of Trade's farm and food business committee, said recently that commodity prices, including crops and livestock, would rise by at least 5 per cent this year for consumers, because of lower output and higher production costs.

Fuel prices remain a major factor in production costs, both directly and indirectly, pushing logistics costs and those of supply-chain industries higher.

Many economic forecasters expect the global oil price to stay above US$100 per barrel this year.

The National Economic and Social Development Board projects the Dubai oil price will rise from an average of $105 per barrel last near to $105-$110 this year, while Goldman Sachs has predicted prices rising to $109.

This will also lead to a rise in the price of fuel crops such as maize, palm oil, sugar cane and cassava.

With such a range of negative factors pushing up the cost of goods, the government realises it can no longer control retail prices under the traditional price-freeze measure. Should it continue to rely on such a measure, it would face an increasingly dissatisfied private sector.

Moreover, consumers are not happy with what they see as ineffective price controls, with many producers having shifted to making other goods and downsizing contents avoid having to hike prices directly.

It seems the Commerce Ministry now understands the inefficiency of the price-freeze policy after employing the measure for more than three years.

Kittiratt Na-Ranong, then commerce minister, said recently that the government would not stringently control goods prices this year, but would instead allow them to adjust reasonably to balance the benefits between producers and consumers.

However, the key issue is how the government can allow prices to increase with less of an impact on consumer sentiment, given that the public has just suffered from severe flooding and now has weaker purchasing power.

If the government were immediately to allow price hikes in consumer goods, this would panic consumers and could destroy national growth. On the other hand, arguably it should no longer control retail prices after agreeing to a significant increase in the minimum wage.

If the government did not allow prices to rise, it could face a petition by private enterprises, which have recently threatened to take legal action against the administration for what they claim was its unfair consideration in regard to hiking minimum wages.

Many manufacturers have strenuously sought permission to increase goods prices in the past several months, notably for packaged sugar, car batteries, electrical wire and food cans.

Other key manufacturers and traders have also said they will increase retail prices after April to compensate for expected higher production costs as a result of wage increases and higher logistics costs.

They include 7-Eleven convenience-store operator CP All, rice packers and producers of essential goods such as soap, detergent, shampoo, other washing items and dairy products.

The Commerce Ministry predicts inflation this year will be in a range of 3.3-3.8 per cent, against an expected 3.8 per cent in 2011. However, if the government allows price increases amid higher labour costs and a series of uncertain factors, the inflation target could be missed, resulting in overall price rises of more than 4 per cent.

The government must, therefore, seek an efficient way to balance the interests of producers while reducing the living costs of a public that is increasingly worried about rising prices.