Commerce cuts inflation target, says deflation not an issue
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Deflation is not currently an issue, the Commerce Ministry insists, despite its decision to lower the full-year inflation target to just 2.1-2.6 per cent.
While acknowledging that the rate of inflation has slowed, newly appointed Commerce permanent secretary Srirat Rastapana yesterday said Thailand had not yet moved into a deflationary period.
“We’d reach a state of deflation when the consumer price index (CPI) showed negative growth for six consecutive months,” she said.
The new inflation target for this year is the lowest since 2009. The previous target was 2.8-3.4 per cent. The ministry’s revision follows a nine-month year-on-year expansion of only 2.36 per cent in the CPI. Last month alone, inflation grew at the lowest rate in 46 months, at 1.42 per cent year on year, and by just 0.16 per cent month on month.
The ministry’s new inflation projection assumes that the average price of Dubai crude oil will be in the range of US$90-$110 (Bt2,803-Bt3,114) per barrel. Its previous estimate was $100-$120.
The US dollar/baht exchange rate, meanwhile, is expected to strengthen from 23-32 on average, to 28.5-32.5. Gundy Cahyadi, an economist at DBS Bank, said the inflation numbers were softer than expected and showed some downward risks to the bank’s 2013 inflation forecast.
However, he is of the view that inflationary pressure will accelerate into 2014 and inflation will average in the range of 3-3.5 per cent next year, as recent export data have been more encouraging for economic-growth prospects.
This convinced him that the Monetary Policy Committee of the Bank of Thailand – due to convene over the policy interest rate on October 16 – would not cut the key rate from the current level of 2.5 per cent.
Household debt
“We still think that monetary policy is still very much accommodative in the economy at this juncture. As it is, note also that the Bank of Thailand remains concerned about household debt in the economy, and we think this will be the priority for now,” he said.
Srirat, meanwhile, said consumer purchasing power would remain unchanged. Though some goods prices are up, others have declined, she said, adding that the inflation target had been lowered mainly due to lower fuel prices.
“The ministry has revised down the annual projection mainly because of lower average fuel prices and the stronger baht. Lower inflation should not mean a lower projection for the country’s gross domestic product, and only reflects a slowing down of price rises,” she said.
The Cabinet decision last Tuesday to extend measures to help lower the cost of living by providing free bus and rail travel. This should help people shoulder higher living costs, as well as offsetting the hike in the price of cooking gas, she added.
The ministry projects that the year-on-year rate of inflation in the final quarter will be 1.7 per cent. The slide in the CPI in September was mainly due to a 0.85-per-cent decline in the non-food-and-beverage index.
The food-and-beverage index rose 2.49 per cent, mainly due to higher prices for meat, rice and flour, poultry and aquatic products, and eggs and dairy products, while the prices of fresh vegetables and fruits were down by 1.14 per cent. Of the basket of goods used to calculate the September CPI, 177 products increased in price, 88 decreased and 185 were unchanged.
Core inflation last month was up 0.61 per cent year on year, and 0.09 per cent month on month.
Core inflation in the first nine months came in at 1.07 per cent year on year, well within the Bank of Thailand’s target band of 0.5-3 per cent.
