Headline inflation for January stood at 1.3%, bringing the 12-month average inflation to 0.6%, which is below the lower bound of the current monetary policy target.
On April 1, Sethaput Suthiwartnarueput, Governor of the Bank of Thailand (BOT), issued an open letter to the Minister of Finance explaining the recent movement of headline inflation, which averaged below the lower bound of the monetary policy target at 1-3% over the past 12 months.
The headline inflation target range of 1-3% serves as a medium-term monetary policy goal for maintaining price stability and is also the official target for the year 2025.
As of February 6, data from the Ministry of Commerce showed that headline inflation for January stood at 1.3%, bringing the 12-month average inflation (from February 2024 to January 2025) to 0.6%, which is below the lower bound of the current monetary policy target.
The Monetary Policy Committee (MPC) provided an explanation, which can be summarised as follows: Causes of below-target inflation and future outlook The average inflation rate over the past 12 months fell below the target range due to supply-side factors, particularly in the energy and fresh food categories. Global oil price declines, driven by concerns over the global economic outlook, contributed to lower energy prices.
Additionally, ongoing government cost-of-living support measures—such as fuel price reductions through the Oil Fuel Fund mechanism, excise tax cuts, and electricity bill subsidies—limited energy price growth to only 1.0%.
However, if these measures were excluded, energy prices would have increased by 4.9%, and the 12-month average headline inflation would have risen to 1.1%. Fresh food prices also grew at a low rate of 0.4%, mainly due to an increased supply of pork and relatively stable vegetable prices compared to the previous year.
Low cost-push inflation contributed to limited price pass-through to other goods and services, resulting in core inflation averaging only 0.6%.
Recent inflation trends and outlook Over the past 2-3 months, headline inflation has gradually increased due to: 1. A low base in energy prices from the previous year, following global oil prices and government subsidies. 2. Easing supply-side pressures that had kept fresh food prices low.
As a result, headline inflation from December 2024 to February 2025 has returned to the target range. In the near term, inflation is expected to hover near the lower bound of the target and may dip below the range at times, primarily due to supply-side factors and specific influences such as competition from low-cost imports from China. Implications of low inflation for economic growth The MPC assesses that Thailand’s low inflation in recent months—and its projected trajectory—does not pose an obstacle to economic growth for the following reasons: 1. Price stability remains intact, as inflation has been driven largely by supply-side factors such as global oil prices and government subsidies, as well as favorable weather conditions supporting agricultural output. Additionally, headline inflation has recently returned to the target range. 2. There is no sign of deflation, as the prices of most goods and services have not broadly declined. In fact, over three-quarters of items in the inflation basket have either increased or remained stable. Moreover, private consumption grew by 4.4% in 2024, indicating no significant demand-side issues. 3. Low inflation does not hinder competitiveness or investment, as subdued private sector investment is not a result of low inflation but rather a lack of incentives to expand production capacity. Structural challenges and intense competition—particularly from Chinese imports in sectors like electronics, petrochemicals, rubber and plastics, and electric vehicles (EVs)—are the main constraints on investment growth.
At the same time, the current trend of low and stable inflation has helped keep funding costs in the bond market low for both the public and private sectors. This contributes to maintaining price competitiveness for businesses by keeping production costs from rising rapidly and supporting a stable real exchange rate.
Moreover, the recent period of low inflation has eased the cost of living for the public, following a sharp rise in the prices of many essential goods since the post-COVID crisis. Prices of key necessities—such as meat, cooking oil, and fuel—remain around 20% higher than their pre-COVID levels.
Looking ahead, the MPC will continue to assess the implications of inflation on the economy to ensure that inflation does not rise or fall to levels that could harm economic performance or create an unfavorable environment for competitiveness and investment.
The MPC will closely monitor the development of various risk factors to inform appropriate policy responses. Key factors influencing inflation trends include global energy prices, which may decline further if global economic growth falls short of expectations, and climate variability, which could impact fresh food prices.
Source : The Nation |
