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by Jack Crooks

Not long ago, emerging markets were the Cinderella story of growth and newfound prosperity. Now they're biting and scratching their way through inflation just like the rest of us. But some may not come out alive.

Take Thailand, for example. In April, the Finance Minister raised the country's inflation target by two full percentage points. Last month fuel prices pushed the cost of food and other important items up 7.6% from just a year ago. That's a 10-year high.

Not to mention surging consumer spending has officials worried that inflation could hit double digits this year.

In this light, it's my concern that the Bank of Thailand [BOT] has found itself behind the curve. They did decide to hike their benchmark interest rate by 25 basis points this month, but that won't be enough.

Thailand's central bank cut rates five times in the beginning of 2007. And up until this month interest rates remained stagnant.

Needless to say, the BOT has a lot of catching up to do.

Sure, their economy is still moving forward, but the potential for inflation to reach or exceed 10% this year is not comforting. At those levels consumer confidence would surely sink. It would also be tough for Thailand to maintain economic stability and global market competitiveness.

It makes sense to expect the BOT to stay behind the inflation curve for a while. If that's the case, growth would surely hit the brakes, or at least apply some pressure. With that in mind, the Thai baht is very vulnerable. That means short-selling could be the order of the day in the weeks to come.

Disclosure: none

Source: Thailand: Is the Magic Gone for This Cinderella Story?