Thailand’s Inflationary Pressure on the Decline

(30/10/2012)

An inflation report for October 2012, issued by the Bank of Thailand’s Monetary Policy Committee, indicates that the country’s inflationary pressure is on the decline. According to the report, demand pressure has also dropped in accordance with the present economic situation, which has been affected by a slowdown in the global economy. However, some demand pressure still remains, as the Thai economy is likely to expand at a level near potential growth projected in the period ahead. Cost pressure is expected to drop slightly, since global crude oil prices next year are likely to stay close to the present level. Other costs, including prices of non-fuel commodities and fresh food, should not be worrisome. The Monetary Policy Committee maintains its forecast for Thailand’s economic growth in 2012 at 5.7 percent, assuming that domestic demand strength will help offset the impact from the global economy to some degree. With exports suffering from weak global demand, economic growth is likely to slow for the rest of 2012. Private investment is starting to decelerate after the tapering off of post-flood reconstruction, as reflected in a decline in machinery and equipment investment, as well as a slowdown in imports of capital goods in the third quarter of 2012. However, the report says that private investment has good prospects, as the business sector remains confident in the overall economy. Foreign investors also want to continue to invest in Thailand, thanks to the country’s strengths in infrastructure, skilled labor, and well-established supply chains, especially for automobiles and parts. At the same time, private sector consumption is also expected to moderate for the rest of the year. The impact of global demand weakness on exports has also become more evident. Manufacturing exports have been the hardest hit, especially electronic products and electrical appliances, since foreign orders are starting to decline. Agricultural exports are likely to remain contracted, partly because of a significant decline in rice exports. Over the period ahead, the view of the Monetary Policy Committee is that export weakness might have a more visible impact on production, public sentiment, and private sector spending. On the other hand, imports of raw materials, intermediate goods, and capital goods appear to have dropped, reflecting reduced reconstruction investment. As for 2013, Thailand’s economic growth is projected to continue but at a pace slower than assessed earlier. The Bank of Thailand expects that the Thai economy in 2013 will grow by 4.6 percent. Inflation in 2013 is likely to stand at 2.8 percent, compared to 3 percent in 2012.