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Inflation, Rates and bath up in Thailand

The Commerce Ministry of Thailand forecast December inflation to stand at 3.1-3.4 per cent on average.

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Rise in the inflation rate

The Thai inflation index in November stood at 108.75, up 2.8 per cent year-on-year as the flood situation in the country has eased and fresh food prices began to drop, Permanent Secretary for Commerce Yanyong Puangrach told a press briefing Wednesday.

Inflation in November declined 0.21 per cent compared to October, mainly fuelled by higher prices of eggs, some consumer goods and construction materials.

Mr Yanyong also reported that the inflation rate in the first 11 months of this year increased by 3.4 per cent compared to the same period last year, driven by a 14.7 per cent rise in fuel prices, a 44.8 per cent growth in piped water prices, and a 1.2 per cent increase in electricity prices.

Meanwhile, the Core Consumer Price (CCP) Index in November increased by 1.1 per cent year-on-year and 0.02 per cent compared to October.

The Commerce Ministry forecast December inflation to stand at 3.1-3.4 per cent on average.

The Commerce Ministry forecast December inflation to stand at 3.1-3.4 per cent on average.

Based on the projection, the inflation in the last quarter of this year is likely to increase between 2.9 and 3.0 per cent while overall 2010 inflation will rise by 3.3 per cent as earlier forecast at 3.0-3.5 per cent.

The Bank of Thailand (BoT) on Wednesday raised the policy interest rate by 0.25 per cent from 1.75 to 2.00 per cent, effective immediately, BoT Assistant Governor Paiboon Kittisrikangwan said.

The decision was made by the Monetary Policy Committee.

It is less important to maintain the current extra-accommodative monetary policy stance when Thailand’s economy is expected to grow at 7-8 per cent this year and 3-5 percent next year, Mr Paiboon said.

As a result, the interest rate should be readjusted to a normal rate after the BoT kept it low for the past two years.

The Monetary Policy Committee raised the interest rate by 0.25 per cent at its last two meetings, in July and August, consecutively.

Thailand’s core inflation in November was 2.8 per cent and core inflation for the year 2010 overall is likely to stay at 3.4 per cent on average, and will tend to grow in the future. It will take a period of time, about four to eight quarters, until the outcomes of the rising interest rate can be seen. It is a signal that interest rate must return to the normal rate.

Regarding worries on increasing margins between the Thai and US interest rate contributing to capital inflow, Mr Paiboon said it is one of several factors but a main factor, leading to capital movement, is the real economic fundamentals which remain strong and which are likely to expand next year, causing capital inflow and rising stock prices followed by an increasing interest rate.

Source : McotNews

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