Consumer prices hit 12-year low
Bangkok Post – 2 July 2009
PHUSADEE ARUNMAS
Consumer prices fell for a sixth month, plummeting to a 12-year low in June, as the cost of oil, public transport, communications and food receded.
Despite the fall, the government still insists Thailand is not in a deflationary spiral, where contracting prices and economic growth are compounded by widespread unemployment.
Inflation measured by the consumer price index (CPI) fell 4% year-on-year in June and a 3.3% decline in May continued Thailand's longest string of contractions since the 1997 financial crisis.
"Lower oil costs from the peak last year and the government's short-term measures to provide free utilities for low-income earners led to the steady decline in consumer prices," said Siripol Yodmuangcharoen, the permanent secretary at the Commerce Ministry.
"We are in a disinflation environment [a condition in which inflation sees a gradual decrease, but the prices of certain items remain on the rise] not deflation."
The price of crude oil, almost all of which Thailand imports, has halved from a record $147.27 a barrel last July.
Monthly inflation edged up 0.4% in June from May, largely on higher retail oil prices and an excise tax hike on cigarettes and alcoholic drinks. Prices of food products such as rice, fresh chicken and seasoning sauces also rose.
The core inflation index, which excludes fresh food and fuel costs, fell 0.1% year-on-year last month, while increasing 0.2% from the previous month.
In the first half, headline inflation contracted by 1.6% overall because of lower oil, textile and utilities prices compared with the previous year. The core consumer price index was up 0.7%.
The ministry expects inflation for the year to be in the zero to 0.5% range, despite a decline of 1.6% in consumer prices during the first half, said Mr Siripol.
"The CPI will likely pick up in the second half of the year as oil prices are on an increasing trend," he said.
Fiscal stimulus attempts by the government are expected to partially bolster domestic consumer prices, he said.
June inflation was higher than expected, showing that domestic consumption, private investment, government expenditure and export income remain weak, said Sompob Manarungsan, an economist at Chulalongkorn University.
"Given that inflation fell for six months in a row, Thailand is now theoretically falling into mild deflation," he said. "Thailand's inflation outlook will rely only on the oil price factor, which is expected to see a price increase by the third quarter."
While Thailand is in a deflationary cycle the situation is not too worrying yet, as it was driven by the decreasing oil prices together with the government's short-term economic stimulus measures, said Thanavath Phonvichai, an economist at the University of the Thai Chamber of Commerce.
In a related development, the latest survey by the university revealed that 60.5% of business operators forecast that tourism this year's would be down from last year because of the global slump, lower spending power, the A(H1N1) flu outbreak and the volatile political situation.
The respondents believed it would take about six months for the tourism sector to recover, which would be around the first quarter of 2010.
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