Thailand: Inflation rises to highest level in 16 months
May 3, 2011
In April, consumer prices jumped 1.38% over the previous month, which almost tripled the 0.49% rise observed in March. The monthly jump was mainly the result of surging prices for food and beverages (March: 0.76% month-on-month; April: 3.12% mom). As a result of the monthly price spike, headline inflation jumped from 3.1% in March to 4.0% in April, overshooting market expectations of a 3.2% rise. The reading marked the highest rate since January 2010. The core inflation index, which excludes more volatile categories of the consumer price index, rose 0.72% over the previous month, pushing annual core inflation to 2.1% in April (March: 1.6% year-on-year), the highest reading since October 2008. At the current level, core inflation remains within the Central Bank's target rate of 0.5% - 3.0%. Moreover, Prime Minister Abhisit Vejjajiva has recently stated that the government plans to cut taxes on diesel in order to continue capping diesel prices at THB 30 a litre, after the current diesel subsidy program expired in April. The measure comes into effect during the May-September period and is expected to ease the burden on the state oil fund, which is used to subsidise fuel. The measure has an expected cost of about USD 1.5 billion. In its April inflation report, the Bank of Thailand revised its inflations estimates and now anticipates headline inflation will average 3.9% this year, lower than its previous range of 2.5% to 4.5%. For 2012, the Bank sees inflation averaging 3.2%, down from its previous range of 2.0% to 4.0%.
Author: Ricardo Aceves, Senior Economist