If deflation is looming, why are prices still rising?
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Re: "Debt-ridden Thailand being sucked into whirlpool of deflation", Overdrive, June 5.
Thanong Khantong is to be complimented on the quality of his latest analysis. However I would like to stress some points. First, deflation is not being experienced in my village, where everyone is instead complaining about the rising cost of living. Whether we are really being sucked into deflation is yet to be confirmed. The rising household debt is down to past policy of bailing out debtors, which has given rise to a popular expectation that the government will always come through. The widespread mentality of ostentatious display doesn’t help.
To remedy the situation, schools should teach children that balancing the household books is better than constant worry over how to pay back debts. Indeed, the difference between the interest debtors have to pay and the “money” cost for lender-banks is scandalously big. I suspect that collusion between the banks is killing competition.
Meanwhile, when it comes to the alleged weakening of the baht, it is true that it has dropped against the dollar, meaning a decline in the value of Thai exports to the US. But the baht has strengthened considerably against the euro, another destination for Thai exports.
Egon
