Despite dip in CPI, deflation is not a concern: ministry
lower oil prices and cheaper consumer goods behind first short-term drop in inflation
Although inflation eased for the first time in more than five years last month, the country has not yet entered deflation as unemployment is still low and consumers have benefited from lower global oil prices.
“Inflation dropped last month because of the much lower oil price. However, it should not yet be called deflation as consumers are still spending money amid the lower cost burden for fuel and consumer goods,” Somkiat Triratpan, inspector-general of the Commerce Ministry and director of the ministry’s Policies and Trade Strategies Bureau, said yesterday.
The ministry reported that the Consumer Price Index for January fell 0.41 per cent on year and 0.59 per cent on month. This was the first time the CPI declined since September 2009.
With oil prices heading down, the ministry will have to revise its inflation forecast for this year, which was 1.8-2.5 per cent. This assumed the average Dubai oil price at US$90-$110 per barrel, exchange rate at Bt32-Bt34 against the US dollar and gross domestic product growing by 3.5-4.5 per cent.
The ministry will closely monitor the global oil situation since world petroleum prices will likely level out and may increase in the future, which will drive inflation up.
A Bank of Thailand spokesman said the slip in inflation was in line with the central bank’s expectations, due mainly to the plunge in oil prices.
Thanavath Phonvichai, director of the University of the Thai Chamber of Commerce’s Economic and Business Forecasting Centre, said Thailand had not yet sunk into deflation since every country’s prices have also dropped in line with diving global oil prices.
“Inflation has declined as expected, but it is not yet a worry because the economy is still expanding and the unemployment rate has remained low at only about 0.7 per cent.
“The country would step into deflation if the Consumer Price Index retreated for six straight months,” he said.
The short-term drop in inflation from lower oil prices will benefit the economy in the medium term, the UTCC says. For the whole year it expects inflation will be 1-1.5 per cent.
This quarter, the ministry projects slight inflation of 0.11 per cent.
For this month, the ministry is also less concerned about the report on core inflation, which strips out volatile fuel and food prices, as the Bank of Thailand will focus on headline inflation for its targeting.
The central bank estimates headline inflation at 1-2.5 per cent this year.
In January, core inflation was 1.64 per cent year on year and 0.16 per cent year on month.
Last month, inflation dropped due to the decline of 1.86 per cent in prices of the non-food component, while the food and beverage component increased 2.34 per cent on year.
Out of the ministry’s inflation basket of 450 items, prices increased for 188 items, such as rice, flour, cooking oil, taxis, fast food and cooked food, while 100 remained unchanged and 162 decreased from the previous month.
