Cabinet rejects BOT inflation target

The Finance Ministry had proposed to the Cabinet a new inflation target of between 0.5 and 3 per cent for next year, but it was rejected, Finance Minister Thirachai Phuvanatnaranubala told a press conference after the Cabinet meeting.

The central bank and the Finance Ministry have agreed to use headline inflation, instead of the previous practice of using core inflation, to make it easier for businesses and consumers to understand the rate and adjust accordingly, Thirachai said.

Headline inflation includes prices of fuel and food items, while core inflation excludes them. As a result, the headline rate is much higher than the core rate. The Commerce Ministry also makes a regular monthly report of headline inflation.

Thirachai said Deputy Prime Minister and Commerce Minister Kittiratt Na-Ranong opposed the proposal.

“Kittiratt was concerned about using headline inflation, as people may worry about the high inflation rate and blame the government. So Kittirat assigned the central bank, the Finance Ministry and the National Economic and Social Development Board to study the issue and said he wanted to be included in this matter,” Thirachai said.

Thirachai played down speculation that the Cabinet’s move would adversely affect the BOT’s monetary policy, saying the central bank could uphold its inflation target of 0.5 to 3 per cent until the Cabinet makes a new decision.

But Thirachai defended the central bank’s proposal that most central banks in the world now target headline inflation, with only two central banks still using core inflation.

He also said the central bank would set a full-year inflation target, not a quarterly target as it did in the past. The new practice would not lead to an early rate hike to curb rising prices, he said.