The Ministry of Commerce recently announced inflation data for March 2009. The significant points are noted in the following:
- Headline Inflation in March 2009 dropped 0.2 percent YoY, as projected by KASIKORN RESEARCH CENTER. This was the third consecutive month of contraction after falling 0.1 percent YoY in February. However, product prices had risen over February. The Headline Consumer Price Index (Headline CPI) increased 0.5 percent over February, mostly due to higher retail oil prices in line with higher global oil prices and fresh food prices. Core Inflation in March was at 1.5 percent YoY, dropping from 1.8 percent in February. The Headline CPI and the Core Inflation in 1Q09 averaged at 0.3 and 1.7 percent respectively, dropping from 2.2 and 2.0 percent in 4Q08.
- Falling inflation might mean weakening purchasing power. This fall is partly due to supply factors influenced by oil and commodity prices.Also, it reflects weak demand due to shrinking consumer spending in line with the higher unemployment rate and the falling incomes of some consumers. According to the BOT, the Private Consumption Index in February had contracted 7.1 percent, versus the contraction of 4.0 percent in January and growth of 3.5 percent in 2008.
- In subsequent months, it is expected that the price of fresh foods and energy might increase. Theprices of fresh food may increase as hot weather might damage farm output. The cost of energy may fluctuate in line with global crude oil prices. Currently, commodity prices and the recovery of economies in key countries, particularly the USA and China, should be watched closely. There are some views that positive signs in some US economic indicators just signaled that the US financial sector has begun to be stabilize, with no connection yet the recovery of the real sector in the near future. However, at present, the current prices and transaction values in global commodity markets show a high correlation with the direction of financial markets. As a result, a recovery of the financial sector might help boost commodity prices, particularly oil, although demand for petroleum has not increased significantly.
- Compared to the rates seen in 2008, Headline Inflation might plunge deeper between April to July, due to the high base effect of last year. Core Inflation will likely decrease over the next few months. KResearch expects that inflation in 2009 might average of -1.0 to +0.5, dropping from the 5.5 percent of 2008. The Core inflation rate in 2009 will likely be 0.0-0.1 percent, dropping from 2.4 percent of 2008.
The latest economic indicators signal a deepening contraction in exports. Also, a worsening situation in consumption, investment and heightening political unrest discord will hamper Thai economic growth and point to a deeper recession. As a result, continuously low Inflation will likely hasten the implementation of easing monetary policy to support fiscal actions as a part of economic stimuli.
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