Impact of high palm oil prices underlines gap between inflation theory and real-life experience.
22/01/2011 (Bangkok Post) - Soaring palm oil prices have led some consumers to seek out substitutes such as soybean, rice bran or sunflower oil, but food vendor Cherdpong Promsamut can't make the switch. Palm oil is indispensable to his deep-fried chicken business, he says.

Chicken fried in other vegetable oils simply doesn't have the crispness and mouth-watering colour his customers want, says Mr Cherdpong. So even though palm oil now costs 24% more than it did a month ago, he's absorbing the cost because he doesn't want to lose business by raising prices.

``I'm waiting for the government to help ease the problem,'' he says. ``It's difficult to use other vegetable oils. I tried soybean and rice bran oil earlier but couldn't get the right crispiness, so I went back to palm oil.

``I can't fry with used palm oil either, as the colour will be too dark, not golden brown.''

Noodle vendor Vareeporn Prempraneerat faces the same challenges as Mr Cherdpong because she needs palm oil to get her crispy deep-fried pork just right.

She's coping by putting just one piece of pork into a bowl instead of two because she wants to keep the prices of her noodles at 25 baht.

Orawan Sookpeerakul, a Marine Asset Protection security guard who earns around 6,000 baht a month, says many of the food items in her kitchen now cost more than they did a few months ago. Or if the price is the same, the quantity is smaller.

``If palm oil stays so expensive, I may switch to making oil from pork as we can also eat the crackling. I used to buy three types of vegetables at 10 baht a bunch but now I get fewer of them though I'm paying the same price,'' she says.

Regardless of what officials and economists may say about inflation _ it's still modest and manageable, most believe _ many people are affected by rising prices of goods necessary for daily life.

Palm oil has made headlines because of the 24% temporary price increase the government approved in light of a steep rise in costs because of palm nut shortages after the heavy floods late last year. But many other products are also more expensive.

One market observer said the government should have seen the shortage coming and reduced the impact on consumers by allowing small, gradual increases instead of a one-off hike to 47 baht per litre for palm cooking oil from the capped price of 38 baht.

Some traders say they're still losing money, and consumers complain that prices are as high as 50 baht in some stores and markets.

The Commerce Ministry projects that inflation this year will stay between 3.2% and 3.7%, even taking into account rising fuel expenses and the strong baht.

Prayoth Benyasut, director of the ministry's Trade and Economic Bureau, believes the higher palm oil price will not put much pressure on the overall consumer price index (CPI) as farm prices have adjusted to higher levels since last year.

The bureau uses the prices of 417 items to calculate the CPI. But it has to collect prices from around 60,000 samples every month by getting actual selling prices from markets.

Selected products in the CPI basket include a wide range of items bought regularly by consumers, from tissue paper and ready-to-drink milk to tyres. Not included are products such as printing or corrugated paper, steel, electrical and stainless steel, though these also face cost pressure and are used in a lot of goods.

In the ministry's product basket totalling 100%, rice has the highest weight at 2.5%, pork 1.73%, oranges 0.89%, milk 0.82%, eggs 0.55%, vegetable oil 0.31% and palm oil 0.15%.

For manufactured products, medicine has a weight of 0.3%, tyres and tissue paper 0.17% each, cement 0.14%, and bricks 0.11%.