Thailand Inflation Expectations in Real Estate, Food Prices

All those trillions of dollars – TARP, QE I and II, ZIRP (zero interest rate policy) etc. - the developed world's central banks are creating out of thin air to prop up the too big to fail banks and stimulate the depressed US economy, are making their way into the developing world's economies. This can be particularly seen in Southeast Asia. Thailand's inflation accelerated to 3.0 percent in December as energy and food prices increased, data showed last week.

Inflation expectations have been rising by about 10% a month. Is there any wonder why global food supplies are getting short if key barometers on future inflation are in high gear in the USA? If expectations are rising 10% a month here, they are rising at 20% (or more) in dozens of countries around the world.

See Inflation Expectations Up 60% in Six Months and World Food Prices at Fresh HIgh

Surplus trade balance - Thailand's was $2442 millions in October 2010 - brings foreign currency into the nation. This inflow has created a strong baht in relation to other currencies. Back in 1999, when I first arrived in Thailand and not long after the currency crisis of 1997,  the exchange rate was about 44 THB to the USD. The rate I saw yesterday was 29.35 baht to the dollar. Back in 2007 when the authore was here in Thailand the rate hovered around 35 THB to the dollar. The THB has continued to strengthen against the dollar.


Here in Thailand, the central bank raised interest rates Wednesday for the fourth time in the past six months, citing the prospect of rising inflation and solid economic growth. The Bank of Thailand raised the official cost of borrowing to 2.25 percent, up from 2.0 percent previously. However, with official inflation at 3%, this is still a negative rate of return. In other words, a borrower can still repay the 2.25% loan with cheaper money, due to an inflation rate of 3%. As government's like to unstate the official inflation rate, the real rate may be higher than 3% providing even greater incentive to borrow. 

In nearby Laos, labor leaders there are pushing for higher minimum wage laws to help Loatian workers as food prices in Laos continue to soar. 

"I observe that our laborers are suffering from the rising cost of living in Laos, particularly the higher food prices. Laborers who are single might be doing OK but those with wives and children face great difficulties living on low wages," Khamla Loonesy, President of the Lao Federation of Trade Unions (LFTU), was quoted by the state-run Vientiane Times as saying.

Fuel in Thailand is now selling for about 30 baht a liter or about 110 baht per gallon ($3.70 USD per gallon). There has not been an increase in airfares because of the increased fuel costs, but tourism has been down for the last two years. Some of the people the author talked to involved in tourism in Thailand say the number of tourists this year is way down, at only about a third to one half of normal. Currently, it is still possible to book a flight on the same day you wish to travel, while the lower priced 24 seat VIP buses are booked in advance.

Rising inflation may help explain why even though demand is down, real estate prices are not falling. Prices for existing property usually bought by foreigners is holding steady, .

Demand for residential real estate appears to have cooled. I have not noticed the many prospective buyers in the real estate offices like in previous years. In fact, in Hua Hin, where the author formerly resided, many of the real estate development and property sales offices were permanently shut down. The developers have vanished. Those that were open, this author rarely saw even a staff member, much less potential buyers. It appears, at least for now, the property asset bubble has deflated.  All of those European buyers that were scooping up properties in the area in and around Hua Hin are no where to be seen. Given the economic conditions in Europe, the problems in Ireland, Spain, Portugal, Greece, and elsewhere, it would be a good bet that demand for these Thai properties will remain lackluster for many months to come.

What won't be lackluster is price increases for foodstuffs caused by the inflation created by the Federal Reserve and European central banks and exported worldwide.



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