Today (November 3, 2008), the Ministry of Commerce released inflation data for October 2008, showing that inflation had dropped substantially. This represents a good sign considering that the Thai economy is lacking other positive factors at present. KASIKORN RESEARCH CENTER (KResearch) has studied the inflation trend for the coming months and come up with the following significant conclusions:
Headline Inflation in October 2008 stood at 3.9 percent YoY, slowing dramatically from 6.0 percent in the preceding month. This figure represents the lowest in 10 months, and lower than most analysts' 4.9 percent forecast. Meanwhile, core inflation this month was 2.4 percent, decelerating from 2.6 percent in the preceding month, which was safely below the Bank of Thailand's inflation targeting ceiling (set in a range of 0.0-3.5 percent) for the third consecutive month.
The Headline Consumer Price Index for October, compared to the index in September (that fell 1.2 percent MoM), was primarily due to the falling prices of the fresh food categories of rice, vegetables and fruit as a result of increased output entering the market. Driving costs overall and oil products also fell drastically in line with weakening oil prices in the global market. During the first 10 months of 2008, Headline Inflation averaged at 6.3 percent and Core Inflation averaged 2.4 percent.
As for the inflation trend over the remainder of the year, it is expected to take a further declining direction along with oil prices and consumer goods. Moreover, inflation in November will benefit from falling prices of prepared foods and public transportation fares. KResearch forecasts that inflation in 4Q08 may probably drop to 3.0 percent, from 7.3 percent in 3Q08. As a result, the yearly average inflation of 2008 would be at 5.7 percent, while core inflation would be around 2.3 percent, still higher than the average of 2007 at 2.3 and 1.1 percent, respectively. The inflation trend in 2009 is expected to exhibit Headline Inflation falling to a range of 1.5-3.0 percent, while Core Inflation might be 1.5-2.5 percent.
The projection that inflation may fall to a lower level is a key factor that could ease problems in the household sector where incomes are being affected by an unfavorable economy. The authorities are expected to undertake an easing monetary policy to spur the economy amid environmental problems arising from the global financial crisis that will be difficult for Thailand to escape.
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