Economists warn high oil prices could push Thailand towards stagflation, squeeze purchasing power

Economists are warning that persistently high oil prices linked to prolonged tensions in the Middle East could accelerate inflation and slow growth, pushing Thailand—and parts of the global economy—towards stagflation, a combination of weakening expansion and rising prices.

Yunyong Thaicharoen, chief economist and sustainability officer at Siam Commercial Bank (SCB), said the conflict appears likely to drag on, keeping oil prices elevated and driving inflation higher. He said stagflation conditions are already emerging in Thailand and in several countries, largely because many economies remain highly dependent on energy imports from the Middle East.

For Thailand, he said, the economy is particularly vulnerable to energy-driven inflation. Thailand’s net oil imports are estimated at around 8% of GDP, a relatively high level compared with many countries, while energy also has a significant weight in the consumer price index, meaning higher global energy prices feed quickly into household living costs.

SCB EIC cuts 2026 growth forecast to 1.4%

SCB’s Economic Intelligence Centre (EIC) has revised down its outlook for Thailand. In its base case, it assumes the conflict eases within two months and projects Thai growth of 1.4%, with inflation at 3.2%, above the monetary policy target range.

In a worst-case scenario where the conflict lasts four months, EIC expects growth could slow to 0.8%-1.1%, while inflation could rise to 4%-5%, with the key risk being that energy prices remain high for longer than expected.

Yunyong said a major concern is real wages, which have remained negative since after the Covid-19 period. Although unemployment is low at 0.8%, he said purchasing power has weakened because incomes have not kept pace with inflation, raising the risk of broader softness in consumption of goods and services.

He also warned that holding energy prices too low for too long can create heavy fiscal burdens and distort price signals, reducing incentives to conserve energy. If the state is eventually forced to release prices abruptly, it could trigger a severe economic shock. He argued that energy prices should be adjusted gradually to reduce the impact.

He added that maintaining fiscal discipline is critical, particularly with Thailand’s public debt at around 66% of GDP and potentially moving towards the 70% ceiling sooner than expected. Clear communication of debt-management plans, he said, would help maintain confidence among investors and rating agencies.

CIMB Thai: inflation above 2% is a danger point

Amonthep Chawla, executive vice president and head of the research office at CIMB Thai Bank, said global energy price volatility is intensifying, and rising domestic energy costs are likely to push inflation higher.

He said earlier assumptions that oil would average below US$70 per barrel have been overtaken by the risk of prices rising beyond US$100 per barrel. Thailand is highly sensitive to oil prices, he said, because higher energy costs feed into multiple product categories and could push inflation above 2%, from earlier expectations of near-zero or below 1%.

He warned that the most severe impact of higher inflation is on living costs. If incomes do not rise at the same pace, real incomes fall, weakening purchasing power—especially among lower-income groups.

Amonthep said the second quarter will be a key period as uncertainty around the Middle East—particularly Iran—becomes clearer. He said the government may need measures to stabilise conditions, such as emergency borrowing, Oil Fuel Fund support, or electricity bill relief, though he cautioned these would be short-term fixes that could bring wider macro risks, including higher public debt, potential rating pressure, current account strains, and faster household debt growth.