Support for BOT's switch to focus on headline inflation
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I fully agree with the Bank of Thailand's decision to switch the inflation regime from core inflation to headline inflation based on the prices of all goods and services in daily life - about 450 items - because it better reflects the real cost of living
But on the policy side, I’m not sure headline inflation targeting would be better in determining monetary policy. In the past, the central bank could have done a good job maintaining the stability of prices by keeping core inflation within 0.5-3.0 per cent.
Headline inflation is the percentage change in the prices of all goods and services categories, including fresh food and energy, which make up 26.9 per cent of household expenses.
Core inflation does not take the prices of fresh food and energy into account, so it is more likely to fluctuate and could cause the policy interest rate controlling inflation to also fluctuate accordingly.
The benchmark interest rate is usually aimed at controlling demand-pull inflation rather than the high cost of production. But the prices of fresh food and energy are regarded as cost-push inflation on the supply side.
If headline inflation is high, how does the central bank raise the key interest rate much more to deal with it?
If it slips out of the 1.5-4.5-per-cent inflation-targeting range and if it cannot achieve that range within one year, that may affect the efficiency of monetary policy. How does the central bank flexibly take measures to cope with it?
Sutipunt Bongsununt
Kanchanaburi
