Thailand plans new minimum wage hike, keeps inflation target

Thailand will increase its minimum wage in January, Prime Minister Srettha Thavisin said on Tuesday confirming a previous deal, while the government plans to further raise it in March.

A wage committee, comprised of government, employers and employee representatives, had previously agreed to increase the daily minimum wage by 2.37%, effective in January, but Srettha deemed the hike too low.

Srettha’s ruling Pheu Thai party campaigned on populist platform with a key plank of raising the daily minimum wage to 400 baht, despite concerns over competitiveness.

“Another investigation covering local wage rates and professional groups will conclude in March ... (to determine) areas and groups that can increase wages,” Labour Minister Phipat Ratchakitprakarn told reporters.

The current minimum wage is 328-354 baht ($9.49 - $10.24) varying between different parts of the country with the committee agreeing to raise the pay threshold range to 330 baht to 370 baht.

Companies have warned that increasing wages at a time when borrowing costs were increasing and Southeast Asia’s second-largest economy was lagging behind its regional peers could make industries less competitive.

Separately, Thailand’s cabinet on Tuesday approved the central bank’s headline inflation target range of 1% to 3% for 2024, unchanged from this year, Deputy Finance Minister Julapun Amornvivat said.

The announcement came after Thailand’s headline consumer price index (CPI) came in at

-0.44% in November

from a year earlier, the lowest in nearly three years.

It was the seventh successive monthly headline inflation that was below the central bank’s target range.

Deflationary pressures come from government policies that reduced energy prices and falling meat prices.

The inflation target, which guides monetary policy, is reviewed each year and the range of 1% to 3% is supportive of economic growth, finance ministry spokesman Pornchai Theeravet, who also heads the fiscal policy office, said in a statement.

Meanwhile, high food prices in recent years have prompted farmers worldwide to plant more cereals and oilseeds, but consumers are set to face tighter supplies well into 2024, amid adverse El Nino weather, export restrictions and higher biofuel mandates.

Global wheat, corn and soybean prices - after several years of strong gains - are headed for losses in 2023 on easing Black Sea bottlenecks and fears of a global recession, although prices remain vulnerable to supply shocks and food inflation in the New Year, analysts and traders said.

“The supply picture for grains certainly improved in 2023 with bigger crops in some of the key places which matter. But we are not really out of the woods yet,” said Ole Houe, director of advisory services at agriculture brokerage IKON Commodities in Sydney.

“We have El Nino weather forecast until at least April-May, Brazil is almost certainly going to produce less corn, and China is surprising the market by buying larger volumes of wheat and corn form the international market.”

The El Nino weather phenomenon, which brought dryness to large parts of Asia this year, is forecast to continue in the first half of 2024, putting at risk supplies of rice, wheat, palm oil and other farm products in some of the world’s top agricultural exporters and importers.

Traders and officials expect Asian rice production in the first half of 2024 to drop as dry planting conditions and shrinking reservoirs are likely to cut yields.

World rice supplies tightened this year already after the El Nino weather phenomenon cut into production, prompting India, by far the world’s biggest exporter, to restrict shipments.

While other grains markets were losing value, rice prices rallied to their highest in 15 years in 2023, with quotations in some Asian export hubs gaining 40%-45%.

India’s next wheat crop is also being threatened by lack of moisture, which could force the world’s second-largest wheat consumer to seek imports for the first time in six years as domestic inventories at state warehouses have dropped to their lowest in seven years.

Come April, farmers in Australia, the world’s No. 2 wheat exporter, could be planting their crop in dry soils, after months of intense heat curbed yields for this year’s crop and ended a three-dream run of record harvests.

This is likely to prompt buyers, including China and Indonesia, to seek larger volumes of wheat from other exporters in North America, Europe and the Black Sea region.

“The (wheat) supply situation in the current 2023/24 crop year is likely to deteriorate compared to last season,” Commerzbank wrote in a note.

“This is because exports from important producer countries are likely to be significantly lower.”