Since the last quarter of 2021 and continuing to the present, the Thai business sector has been grappling with rising costs. Data from TTB Economic Analysis Center or TTB Analytics indicates that in 2022, operators will bear an additional cost burden of 416 billion baht due to a 5.7% increase in production costs.

 

This is a result of five factors: the rising crude oil prices due to supply concerns stemming from the Russia-Ukraine war, increased steel prices from higher raw material and transportation costs also related to the Russia-Ukraine conflict, rising agricultural product prices in response to recovering demand following the easing of COVID-19 restrictions in many countries, increased industrial product prices due to rising transportation and raw material costs, and higher food prices from agricultural products.

As a result of these impacts, the production costs for domestic operators have led to a significant increase in the Producer Price Index (PPI) in 2022, with fuel prices rising by 33.1%, steel by 5.4%, agriculture by 8.1%, industry by 5%, and food by 5%.

The trend of rising raw material production costs in 2022 will result in an overall increase in Thai business production costs by 5.7%, amounting to over 416 billion baht, with industrial goods accounting for 35%, followed by fuel at 28%, agricultural products at 14%, steel at 8%, and food at 2%.

Rising costs are expected to reduce overall business profit margins by 4.5%.

Regarding the impact of rising costs on business profit margins, an analysis of the profit and loss structure of businesses in Thailand shows that if operators do not raise product prices, the trend of production costs (COGS) increasing by 5.7% in 2022 will lead to a 4.5% decrease in the Gross Profit Margin of Thai businesses overall. The impact of rising costs on business profits can be categorized into three groups:

Group 1: Severely Affected (Cost Increase 6.0% - 25.8%) includes energy, transportation and logistics, fisheries, electricity producers, mining, chemicals, rice milling and export, processed agricultural products, food, and livestock. This group is heavily reliant on raw materials such as fuel and agricultural products, resulting in significantly increased production costs and a decrease in profit margins ranging from 5.4% to 16.9%.

Group 2: Moderately Affected (Cost Increase 4.7% - 5.7%) includes steel, construction materials, tourism, furniture, beverages, construction contracting, machinery and equipment, computers and components, packaging, and consumer goods. This group primarily relies on industrial raw materials, steel, and food, leading to a profit margin decrease of 3.2% to 4.8%.

Group 3: Minimally Affected (Cost Increase 2.9% - 4.3%) includes IT and telecom, real estate services, health businesses, retail consumer goods, personal services, and business services. This group has relatively low production costs as it operates in the service sector; however, it still faces indirect impacts from rising costs.