Thailand’s consumer price index fell by 0.47% in March from the previous year, marking two straight quarters of negative headline inflation largely fuelled by government subsidies on diesel and electricity that have swelled the state oil fund’s deficit to 98.2 billion baht (USD2.7 billion).
Inflation would rise again if the government does not renew its subsidies on fuel and electricity, or has to lower the subsidy due to fiscal constraints, said Poonpong Naiyanapakorn, director of the Ministry of Commerce’s Trade Policy and Strategy Office. The government’s diesel price capping scheme expired on Sunday, and the excise tax cut on diesel will expire on April 19.
Electricity prices have been capped at an average of 4.18 baht per kilowatt-hour since September. The subsidies, one of the first actions taken by Prime Minister Srettha Thavisin to address the high cost of living, have been extended every three months.
The March consumer price index came in at 107.25, a 0.03% increase from February. Falling prices for pork, fish, fresh vegetables and vegetable oil because of more ample supplies also contributed to lower headline inflation, although the price of rice, eggs, milk and sugar rose. Non-food items such as fuel, airfare and liquor grew 0.15% more expensive.
Core inflation, excluding fresh food and energy, continued to tick up, by 0.37% from the previous year, a slight decrease from a 0.43% spurt in February.
TPSO said it expects Thailand’s six-month negative inflation streak to end in the second quarter, in line with an expected rise in the global price of crude oil and depreciation of the baht. Crude oil futures rose on Friday morning amid fears of a regional war in the Middle East.
But the inflation rate will remain low as the Thai economy grows at a much slower rate than previously forecast and as intense competition among wholesale and retail traders drives continuous price reductions. The TPSO adjusted its headline inflation forecast for 2024 from a midpoint of 0.7% to 0.5%, well below the Bank of Thailand’s target range of 1% to 3%.
Srettha has pointed to monthly negative CPI reports to pressure the central bank to begin lowering interest rates, which were hiked to 2.5% to curb inflation.
A proposal to extend the subsidies is pending cabinet approval and an alternative source of funding. The current scheme has the Oil Fuel Fund and Electricity Generating Authority of Thailand under stress.
Commerce groups say that despite higher diesel prices manufacturers will be hesitant to raise consumer prices while Thailand’s economic recovery remains stunted.
TPSO said Thailand continued to have the lowest inflation rate compared to six other economies in the Association of Southeast Asian Nations — Indonesia, Laos, Malaysia, the Philippines, Singapore and Vietnam.
Except for Laos, where inflation is still in the 20% range due to fiscal difficulties, most Southeast Asian countries have inflation of around 3%. Inflation in the Philippines inched up 3.7% year-on-year in March, faster than the 3.4% in the preceding month but slower than the 7.6% clip recorded a year ago.
The Philippines’ statistics agency said in a briefing on Friday that price growth came as food prices and transport fares increased in the past month. This is the second straight month that inflation quickened.
Core inflation, computed without volatile items such as fuel, retreated to 3.4% in March, slower than the 3.6% the previous month. – NikkeiAsia
