Inflation in Thailand Hits 10-Year High

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Prices Hit 10-Year High

By Petchanet Pratruangkrai

The Nation

Published on July 2, 2008

Inflation at 8.9% in June; Possibility of 7% Rate for the Whole Year

Consumer prices hit a 10-year high of 8.9 per cent last month, heightening anticipation the monetary authorities will soon take interest rates off cruise control and shift up a gear to dampen inflation expectations.

The Commerce Ministry said escalating oil prices helped push last month's inflation up to a level not seen since June 1998. With the world oil price pegged to soar to US$150 (Bt5,000) per barrel, the ministry has revised its oil-price base for inflation calculations from $105 a barrel to between $120 and $125.

"The ministry expects the average oil price will be $142 a barrel in the remaining months, which would drive inflation to 7 per cent for the year," deputy permanent secretary Pairoa Sudsawarng said yesterday.

Inflation in the first half shot up to 6.3 per cent, exceeding the ministry's whole-year target of 5.5 per cent.

"Inflation in June surpassed our expectations and market consensus only to firm up the chances for a policy rate outcome of a 50-basis-point hike when the Monetary Policy Committee meets mid-July," Jun Trinidad of Citigroup wrote in a report entitled "Thailand Economic Flash".

"We believe policy-makers may want to start rushing the adjustments to the policy-rate setting in view of the accelerating inflation momentum. Core inflation in June crossed 3.5 per cent, the high end of the Bank of Thailand's annual core-target range, a first since the Bank of Thailand adapted the inflation-targeting programme."

However, the Commerce Ministry remains optimistic the oil-price spurt may have run out of gas and that oil prices will not rise as expected in the remaining months, so it has left its annual target unchanged at 5.5 per cent for the year.

Oil prices averaged $103.80 a barrel in the first half, peaking at $136.50 late last month, compared with $65.70 in June 2007.

Pairoa said last month's high inflation rate was acceptable for the economy and in academic terms, because it was due mainly to the skyrocketing oil price, which affected all other countries.

In May, inflation peaked at 25.2 per cent in Vietnam, 10.4 per cent in Indonesia, 9.6 per cent in the Philippines, 8.2 per cent in India, 7.7 per cent in China, 7.5 per cent in Singapore and 3.8 per cent in Malaysia.

However, the heat-up in inflation may suffocate consumer sentiment as the cost of living goes up, but incomes remain stagnant, she said.

Prices of food and beverages increased 11.4 per cent last month, with flour jumping 35.8 per cent, pork 31.6 per cent and eggs and dairy products 11.1 per cent year on year.

Non-food and beverage prices increased 7.2 per cent, largely from the oil price increasing 44.7 per cent and transportation and communications costs rising 16.8 per cent.

Last month's core inflation, which excludes volatile energy and food prices, increased 3.6 per cent year on year and 0.9 percentage point from May.

Core inflation in the first six months of the year was 2.2 per cent.