Thailand enters technical deflation after nine months of falling prices
Falling costs, especially fuel and farm goods, are dragging prices down, but core inflation is still positive, suggesting demand has not yet cracked.
- Thailand has entered a state of "technical deflation" after its headline inflation remained negative for nine consecutive months, exceeding the typical six-month definition.
- The primary causes are lower production costs, driven by cheaper fuel and persistently low agricultural prices.
- The situation is not yet considered a crisis because core inflation remains positive and the country's GDP is still growing, which prevents a harmful "deflationary spiral."
- Economists warn that the biggest risk is not the deflation itself, but the country's prolonged period of weak economic growth, which could lead to long-term stagnation.
Assoc Prof Thanavath Phonvichai, president of the University of the Thai Chamber of Commerce and chairman of the Centre for Economic and Business Forecasting, said Thailand has entered “technical deflation” after headline inflation stayed negative for nine consecutive months.
Speaking to Thai newspaper Thansettakij, he said economists typically define technical deflation as a sustained fall in prices for more than six months.
He attributed the current bout mainly to lower production costs, particularly cheaper fuel and persistently low agricultural prices.
However, he noted that core inflation, which strips out energy and fresh food, remains positive, suggesting underlying purchasing power has not yet reached crisis levels.
Technical vs harmful deflation
Thanavath said the key distinction in the current situation is that Thailand’s GDP is still expanding, albeit at a rate below its potential.
In theory, deflation becomes dangerous when it coincides with negative GDP growth, creating a “deflationary spiral” in which consumers delay purchases in expectation of lower prices, businesses lose revenue, cut jobs, and the economy slides into a deeper downturn.
Biggest risk: low growth trap
He argued the most worrying macroeconomic signal is not the negative inflation figure itself, but Thailand’s prolonged period of weak growth.
If the government and the central bank fail to align fiscal and monetary policies to bring inflation back within its target range, Thailand could risk falling into a long-term poverty trap and economic stagnation.
He said the economy is currently growing amid falling costs and intense competition, leaving firms unable to pass costs, or excess profits, on to consumers because of fierce market rivalry and fragile purchasing power.
2026 inflation outlook and producer prices
Thanavath forecasts headline inflation in 2026 will return to positive territory at around 0.5%, supported by a rebound in agricultural prices as farmers cut planting when prices are too low, reducing supply and allowing prices to recover.
On the producer price index (PPI), he said inflation trends remain an important leading indicator, with two main downward pressures:
- Excess supply linked to trade-war fallout, leading to dumping of goods and raw materials into global and regional markets, including Thailand, which pushes down prices for imported inputs and semi-finished goods.
- Energy price controls, as government measures to cap energy and electricity costs, help prevent industrial production costs from surging even when global oil prices are volatile.
He said the PPI is likely to remain negative in the first quarter, before recovering into positive territory in the second half of the year as the global economy adjusts better to trade-war conditions and overseas orders begin to stabilise.
