Central bank expects uptrend in inflation

The Bank of Thailand expects a temporary rise in the rate of inflation, but is confident it will remain within the range predicted for this year.

The BOT projects that headline inflation will come in at 2.5 per cent this year, with the increase due largely to the rising price of cooking gas, which has been on the increase since last year.

The central bank’s target range for core inflation this year is 0.5-3 per cent. 

The latest numbers as of March are 1.13 per cent for core inflation and 2.11 per cent for headline inflation. These numbers are expected to rise when the BOT announces the April figures next week. 

“The current rise in inflation was expected by the Bank of Thailand, and it is only a temporary effect caused by the rising price of cooking gas, while the inflation number for the whole year is still within the range that we have predicted for 2014,” said Roong Mallikamas, spokeswoman of the central bank.

She said the price of cooking gas had been on the rise by Bt0.50 per month since last September, and was expected to continue increase until August this year.

This contributed to the recent inflation increase, but its effect has been predicted by the central bank since the beginning of the year, she added.

Roong explained that currently, the higher inflation rate had only affected the price of foods due to rising production costs, and there was no sign of it spilling over into the prices of other products. 

 

‘No need to panic’ 

“The chances of a rapid increase in the inflation rate are slim; there is no need to panic,” she insisted.

Commenting on the Monetary Policy Committee’s expected June cut in its forecast of the country’s economic growth, she said this was partly due to the delay in government spending, which was lower than in the first half of the prior fiscal year.

However, in terms of actual funding, the amount this year is still larger than last year’s, since the entire budget amount is higher. 

She said the public spending rate in the first half of the 2014 fiscal year, which commenced in October, was 49.2 per cent of the total allocated for the year. This is lower than the 50.5-per-cent spending rate in the first half of the 2013 fiscal year, which means that government spending is still expanding and can help stimulate the economy, although its effect is less than expected.

Roong also said she was concerned that the last two quarters’ delay in government spending would affect private investment, since most investors would continue to be in wait-and-see mode and little or no new investment or expansion of businesses would be undertaken, which could worsen the current sluggish level of economic growth. 

However, she still believes that export growth, which is forecast to come in at 4.5 per cent this year, will continue to boost the economy through the direct positive effect of the economic recovery in Group of Three countries – the US, Japan and euro-zone nations – while the spillover effect of G-3 growth will contribute to the expansion of the Kingdom’s neighbouring trading partners.