Thailand Forecasts Negative Inflation

[george]

CONSUMER PRICES

Ministry forecasts Negative inflation

But contraction termed merely 'technical' and not deflationary

BANGKOK: -- The Commerce Ministry has adjusted the inflation target for 2009 to between zero and minus 0.5 per cent, against the previous range of zero to plus 1 per cent.

This is the lowest level in a decade, due mainly to the government's extension of measures to reduce living costs.

However, the ministry remains optimistic that negative inflation will not represent a deflationary situation, as it is only a technical contraction resulting from the extended measures.

The Consumer Price Index in July dropped for the seventh consecutive month to 4.4 per cent year on year, the lowest level this year. Inflation was down by 1.9 per cent in the first seven months of the year.

Permanent secretary Siripol Yodmuangcharoen insisted this year's negative inflation was technical and did not mean people were afraid of spending following the slowdown in economic growth.

"The ministry has found consumers are still spending their money as usual. Unlike normal circumstances, this year's negative inflation has benefited consumers, as the government has shouldered their essential costs of living," said Siripol.

The ministry said inflation contracted 1.1 per cent in 1999, in the wake of the previous economic crisis. If this year's predicted inflation of zero to minus 1 per cent turns out to be correct, it will be the lowest level in a decade.

The ministry also expects inflation to reverse direction into positive territory in the fourth quarter of the year, as oil prices are likely to increase.

The full-year forecast assumes oil prices being quoted at US$50 to $60 (Bt1,700 to Bt2,000) per barrel, against an average of $64.70 in the first seven months. The baht is expected to average 35-36 to the US dollar, against 34.84 in the first seven months.

Inflation in July was unchanged from June.

Lower inflation in July was due to prices in the non-food sector falling by 9.7 per cent, mainly from lower oil prices, electricity and utility costs, public transportation costs and education fees.

Prices in the food and beverage sector were up by 3.2 per cent, due mainly to increases in the price of pork, chicken, eggs, other dairy products, fresh fruit and vegetables.

Core inflation, which excludes volatile food and energy prices, dropped by 1.2 per cent year on year but remained unchanged from June. Core inflation increased by 0.5 per cent in the first seven months of the year.

Saowanee Thairungroj, vice president for research at the University of the Thai Chamber of Commerce, said if core inflation dropped continuously over the next few months, the economy would end up in a deflationary situation.

"Deflation could cause lower foreign direct investment, as people slow down their spending during sluggish economic growth," she said.

-- The Nation 2009-08-03

[verydumbubba]

They now have the Fiscus about totally covered at the CMA Deprtment - the only thing left in Das Krystal Ball Dept is

perhaps the Big Tee rolling in on his trusty Gulf, with a Fatboy tucked under his arm.

Bubba