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2 Feb 2006

Thai Economy

Inflation, 2006: Rising by 4.3-5.3 Percent

คะแนนเฉลี่ย

The Ministry of Transport finally approved the request made by The Transport Co., Ltd. to allow a hike in bus fares nationwide by 3 Satang/kilometer. At the same time, regular and air-conditioned buses in Greater Bangkok, operated by the Bangkok Mass Transit Authority, will also see a fare increase of THB1, effective February 6, 2006.

These bus fare hikes nationwide will definitely affect the country's inflation rate this year. Presently, transportation-related expenses come second to food and beverages among all expenses of households.

In 2005, Thailand was confronted with surging inflation. Headline Inflation rose to 4.5 percent, the highest level in seven years, due mainly to rising cost-push inflation caused by the pass-through effects of the world's skyrocketing oil prices.

Meanwhile, Thailand's upbeat exports last year led to higher demand for raw materials, which in turn boosted prices of farm produce used as raw materials and basic commodities. Export prices of agricultural products soared by 10.3 percent, while those of industrial products rose 5.7 percent, thus lifting the prices of goods and services domestically, in tandem.

Factors that caused the Headline Inflation to rise to 4.5 percent, and Core Inflation to rise to 1.6 percent in 2005 were increases in oil prices, long drought, sudden flooding, the Avian Flu, higher production costs, minimum wage increases and salary adjustments of civil servants, plus higher electricity charges and land prices.

Key factors that will determine the inflation rate in 2006 will be the price of raw crude oil in the global market, which is projected to remain high. Although raw crude price hikes will likely not be as high as in 2005, it is forecast that oil prices will remain somewhat high, because the demand for oil is still strong in countries whose economic growth is high, such as China and India, including oil demand in the US, which tends to remain high.

Meanwhile, concerning supplies of crude oil in the global market, it is forecast that it will be impacted by political risks with the world's large oil exporting countries in the Middle East, Africa and Central America. Therefore, the trend for crude oil supplies in the global market will face further volatility, which will result in the prices of raw crude oil in the global market adjusting higher in 2006.

KResearch forecasts that if the average Brent crude oil market price in 2006 hovers around USD60/barrel, it will cause Thailand's Headline Inflation in 2006 to reach 4.3 percent, but if the average Brent crude price rises to USD70/barrel, the Headline Inflation in 2006 will rise to 5.3 percent.

Thai Economy

Inflation