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Thai economy not suffering deflation yet, Commerce Ministry says

May 07. 2020
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By The Nation

Inflation as measured by the consumer price index fell to 99.75 in April, down 2.99 percent on the same period last year and the biggest contraction in 10 years and 9 months, said Pimchanok Vonkorpon, director-general of the Trade Policy and Strategy Office (TPSO) under the Commerce Ministry.

The figures were driven down by energy products, especially fuel, which fell by up to 30.85 percent to the lowest level in 11 years and 2 months, said the TPSO. Also contributing were electricity and water bills as well as prices of basic necessities, which have been reduced by government measures to soften the Covid-19 impact.

Meanwhile, the price of fresh food products continued to rise as drought hit supply, but at a slower pace thanks to sluggish demand during the Covid-19 crisis. Prices of goods and services in other categories continued to move in line with consumer behaviour. Core inflation dropped from 0.54 percent in March to 0.41 percent in April. Average headline inflation for the first four months (Jan-Apr), compared to the same period in 2019, fell by 0.44 percent while core inflation was up by 0.5 percent.

The sharp drop in inflation after the Covid-19 outbreak and plunging oil price had affected demand and supply, especially due to public expenditure during the pandemic, with the trend still downward until May.

However, inflation in the second quarter will remain at -2.28 percent. The trend should improve in the third and fourth quarters, said the TPSO.

Once the Covid-19 outbreak has been contained, opportunities to open new businesses should rise as government stimulus measures take hold. As such, the TPSO projects inflation of -0.2 percent to -1 percent this year, with a median of -0.6 percent.

"Will the negative inflation equate to deflation? At this time the answer is still no, despite negative inflation for two consecutive months now. According to economic principles, deflation has three factors: Inflation below zero; negative inflation for three months; and decline in prices of goods and services. Current figures do not reflect those factors," Pimchanok said.

Inflation in April was driven down by the falling price of fuel, but also of non-food and beverage products, which dropped by 5.28 percent, housing (-4.56 percent), and electricity and water bills, LPG, and communication (-0.05 percent). However, price increases were seen for clothing and shoes (0.08 percent), personal treatment and services (0.16 percent), public transport fares (4.29 percent), entertainment and textbooks (0.34 percent), and tobacco and alcohol (0.02 percent).

Meanwhile, non-alcoholic food and beverage prices rose by 1.04 percent, except for fruit and vegetables which fell by 4.1 percent. Rising prices were also seen for rice, flour and flour products (7.36 percent); meat, duck, chicken and aquatic animal produce (1.37 percent); eggs and dairy products (5.52 percent); cooking utensils (3.16 percent); and non-alcoholic beverages (2.32 percent).

The Producer Price Index dropped by 4.3 percent to its lowest level in four years and 10 months, falling in all categories in line with the global economic slowdown triggered by the pandemic. The price index for construction materials also fell by 4 percent, the 11th consecutive monthly decline, as the price of steel and steel products plummeted by 15.4 percent, in line with world market prices. The price of construction materials has fallen as many real estate and other projects have been delayed due to reduced demand.

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