Deflation likely to deepen, says Commerce MInistry

Deflation likely to deepen, says Commerce MInistry

Consumer prices could contract by an average of 1.1% under revised forecast

Shoppers buy groceries at The Mall Bang Kapi on May 17. Headline inflation in the country has fallen for four consecutive months. (Photo by Varuth Hirunyatheb)
Shoppers buy groceries at The Mall Bang Kapi on May 17. Headline inflation in the country has fallen for four consecutive months. (Photo by Varuth Hirunyatheb)

Deflation is expected to be greater than originally forecast, the Commerce Ministry said on Friday, after consumer prices in June contracted for the fourth straight month.

The ministry downgraded its annual headline inflation forecast to a range of -0.7% to -1.5%, with an average of -1.1%, from a range of -0.2% to -1.0%, an average of -0.6%.

The forecast assumes GDP will contract by between 7.6% and 8.6% this year, with Dubai crude oil prices averaging US$35-45 a barrel and an exchange rate between 30.50 and 32.50 baht per US dollar.

“The pandemic has affected the world’s overall economy and tourism,” said Pimchanok Vonkorpon, director-general of the Trade Policy and Strategy Office.

“Although the inflation rate may edge up in the second half of the year, the full-year rate will remain depressed due to the impact of Covid-19 reducing economic activity such as tourism and consumer consumption, purchasing power and oil prices.”

Ms Pimchanok expressed optimism that the 400-billion-baht budget earmarked for economic and social rehabilitation, part of 1.9 trillion baht in coronavirus relief measures, and spending of the 2020-21 fiscal budget would stimulate the economy in the remaining months of the year.

The office said the consumer price index, a gauge of headline inflation, fell 1.57% year-on-year in June after a 3.44% dip in May, the biggest decline in nearly 11 years.

June marked the fourth straight month of declines after prices fell 3% in April and 0.54% in March, which was the first contraction in 33 months.

The June figure was affected by the end of a government utilities subsidy to ease the impact of the coronavirus crisis, and lower energy and fresh food prices.

Other prices were quite stable and moved in line with the current situation and consumer behaviour, Ms Pimchanok said.

Core inflation was -0.05% in June. For the first half of the year, headline inflation was -1.13% and core inflation was 0.32%.

Ms Pimchanok said social and economic activity, particularly in the service sector, had rebounded after the easing of the lockdown in Thailand and other countries. The June figures were underscored by the rising trends of other economic indices, indicating that the economic situation and inflation are gradually nearing normal.

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