Political, economic uncertainty may fuel inflation

The Commerce Ministry reported yesterday that growth in the Consumer Price Index last month had eased to 3.53 per cent year on year, the lowest expansion in nine months. The growth was due to higher food prices amid the flood-recovery period.

However, compared with November, when the flooding and food prices peaked, the index was down 0.48 per cent. Full-year inflation for last year came in at 3.81 per cent, well within the ministry’s forecast range of 3.2-3.8 per cent, said permanent secretary Yanyong Phuangrach.

He said Thailand was one of four Asian countries – Japan, Brunei and Malaysia being the others – where inflation was under 4 per cent, which demonstrates high efficiency in controlling the rate of price increases.

The ministry is confident inflation will remain in the range of 3.3-3.8 per cent. "Inflation this year will be driven by increases in commodity prices, consumer spending and stable economic growth," he said.

However, four major risk factors could yet result in rocketing prices: political and global economic uncertainties, unexpected natural disasters

and an unclear direction for the policy rate.

Yanyong said political conflict in the Middle East could mark up fuel prices and cause higher inflation, while the economic crunch in euro-zone countries could affect consumer purchasing power and economic growth.

Moreover, an unexpected natural catastrophe, in particular drought or flood, would also affect farm production and result in higher crop and food prices.

Unclear direction by the central bank, over whether to increase the policy rate to curb inflation or seek to reduce interest rates to stimulate economic growth, could also affect price changes this year, the official said.

Last year, the price of food and beverages increased 7.96 per cent as a result of rising commodity prices, while the prices of other items rose by just 1.32 per cent, mainly on increases in oil prices and utilities costs. According to a ministry study, prices in the current quarter will continue to rise steadily, by 3.65-3.75 per cent.

The ministry also expects that floating the prices of liquefied petroleum gas and natural gas for vehicles will create only a small impact on goods prices and inflation this year.

Products that will be affected the hardest by such a move are cement, followed by plastic pipes, fans, drinking water, detergent and paper napkins, because of higher logistics costs. However, the prices of those products will rise by only 0.4-3.8 per cent, the ministry predicts.

Core inflation, which excludes volatile food and energy prices, came in at 2.36 per cent last year.

In December alone, core inflation increased by 2.66 per cent year on year, and 0.11 per cent month on month, as a result of higher goods prices and rental fees.