Persistently high crude prices could raise inflation

"Inflation could be affected if crude prices are persistently high like this. However, other factors have to be considered," BOT senior director Mathee Supapongse said, adding, "we are closely monitoring oil prices."

The overall inflation expectation was reduced to 3.4 per cent for the next 12 months in January’s central bank survey, from 3.6 per cent a month earlier.

Headline inflation declined to 3.38 per cent in January due to drops in fresh-flood prices, while core inflation accelerated to 2.75 per cent from 2.66 per cent in December due to higher processed-food prices on the back of continuous pass-through of costs. The price of Dubai crude is currently about US$122 (Bt3,692) per barrel, while the year-to-date average is $112.

The BOT estimates Dubai crude to average at $103.3 per barrel for the whole of 2012, with projections of $106.5 in the first half of this year and $100 for the latter six months.

"We expect to use the new estimates for assessing the Thai economy in the next MPC [Monetary Policy Committee] meeting on March 21," Mathee said.

This year’s economy is now expected to expand by more than the central bank’s current projection of 4.9 per cent, given domestic demand and a low-base effect, the director said.

Due to progress in residential and commercial repairs after last year’s floods and an accommodative government policy for investment, Thai business confidence rose to a five-month high in January, according to the BOT’s survey.

The central bank’s current Business Sentiment Index (BSI), based on a survey of executives, climbed to 50.8 points in the January survey from 48.5 in December.

However, risks to new investment persist with the government’s water-management plan and global economic uncertainties.

"Both the current and three-month BSI increased above 50," he said, adding, "the current figure has been above 50 for the past five months."

The economy continued to improve across all sectors in the first month of the year. The Manufacturing Production Index improved, with a smaller contraction of 15.2 per cent year on year than the previous month’s shrinkage of 25.3 per cent.

The capacity utilisation rate rose to 58.5 per cent from 51.9 per cent in December. Agricultural production expanded by 0.9 per cent year on year in January, given a continuous rise in rubber, oil palm, sugar cane and cassava production.

However, agricultural prices fell by 12 per cent on decreases in the prices of rubber and oil palm as a result of last year’s high base effect.

The Private Consumption Index edged up 2.6 per cent year on year in January, due mainly to value-added tax and higher household electricity consumption.

The Private Investment Index also improved, with a lower contraction of 0.4 per cent year on year than the December’s shrinkage of 3.9 per cent.

January’s 29.1-per-cent surge in commercial vehicle sales, compared to a 46.9-per-cent contraction in December, and construction investment for flood-damaged residential and commercial units, are cited for the improvement.

Despite terrorism warnings, Thailand’s tourism made a full recovery in January, reversing to record 8-per-cent growth year on year after contracting by 2.2 per cent in the prior month, due to a rising number of visitors from Asean, China and Russia.

The number of foreign tourist arrivals climbed to 1.95 million in January from 1.78 million the previous month month, while the overall hotel occupancy rate increased to 65.1 per cent from 57 per cent.

In January, the country had a net capital outflow of Bt944 million, due mainly to outflows of Thai direct investment and Thai equity and other investment portfolios.