The prevailing US financial crisis has made many very anxious about its impact on the Thai economy. This is particularly true in light of the latest economic indicators in August 2008 pointing to slowdowns in consumption, investment and, in particular, exports. However, softening price pressure - as evidenced by the lower inflation rate for September 2008 (as released by the Ministry of Commerce on October 1, 2008), was a positive sign for the economy. KASIKORN RESEARCH CENTER (KResearch) has completed an analysis of the inflation outlook for the coming months and come up with some points of note:
- Headline Inflation for September stood at 6.0 percent Y-o-Y, down from 6.4 percent in the month before. This figure was the lowest in five months, and was lower than the 6.2 percent earlier forecast by most analysts. At the same time, the Core Inflation rate for September equaled 2.6 percent, slowing from 2.7 percent in the previous month, which was lower than the upper limit of the Bank of Thailand's inflation targeting framework (0-3.5 percent) for the second month in a row. This easing inflation trend could be attributed to the declining prices for rice and other grains, as well as falling prices of vehicles and vehicle operation segment due to slowing global oil prices.
- As for the inflation outlook toward the months ahead, despite the rising CPI expected for October due to a surge in fresh food prices amid lower supplies as a result of flooding and higher demand during the Kin Jae festival, the Y-o-Y inflation rate may continue to ease. This would be due in part to the higher base effect from the final quarter of last year and declines in global oil prices. KResearch projects that the inflation rate in October may drop to a range of 5.4-5.7 percent, and may continue to ease during the last two months of this year, should oil prices remain stable. This will put the full-year average Headline and Core inflation rates for 2008 at around 6.2 percent and 2.5 percent, respectively, higher than the averages of 2007 at 2.3 percent and 1.1 percent.
- The easing inflation is regarded as a plus for the economy as it will help contain the crippling cost of living, and relieve some of the burdens for consumers. In addition, against the backdrop of the US financial turbulence, which is fast spreading to Europe, prompting much anxiety about a global economic downturn that may be deeper and longer than expected, softening inflationary pressure may provide Thai policymakers with more policy options to withstand external volatility that may ripple through our exports and financial markets.
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