New BoT study explores inflation data

New BoT study explores inflation data

The Bank of Thailand's Puey Ungphakorn Institute for Economic Research (Pier) forecasts the country's high inflation rate will unravel naturally in the medium to long term because rising inflation is mainly a result of specific factors rather than macroeconomic issues.

According to Pier's research on the country's rate of inflation, the specific factors represent 85% of the inflation basket, while 15% is attributed to macroeconomic factors.

Nuwat Nookhwun, principal researcher at Pier, said the sector-specific shock that has pressured the country's inflation rate is mainly increases in the prices of energy and fresh food, citing the price of fresh pork as an example.

Pier used the price data for goods and services over the past 20 years for its paper and found the price of a specific item was quite volatile each month. For example, in August this year, the headline inflation rate stood at 7.86%. While the price changes of some items of goods and services were by zero percentage points, others increased far higher than the overall rate of inflation.

The price of fresh pork increased by 22.6% at the beginning of this year, compared with the corresponding period in 2021. However, the prices of some other items were unchanged or declined, he said.

Mr Nuwat said the research indicated the impact of macroeconomic factors on the rate of inflation has been declining, while the role of specific factors has been increasing. More than 50% of goods and services included in the inflation basket are not being affected by the economic cycle, therefore rising inflation does not impact the prices of goods and services broadly, he said.

Because a change in the price of a certain category of goods or services would only impact other categories by 3%, the effect on the inflation rate caused by specific factors would not be long term, said Mr Nuwat.

Expectations regarding inflation were cited as another factor affecting the rate of inflation. Pier examined the inflation expectations of four groups: households, businesses, economic forecasters, and financial market data. The survey found most of them expected the inflation rate to decline to 2% over the next 5-10 years, in line with the central bank's inflation target range of 1-3%.

Given that specific factors play a major role in the rate of inflation, while such factors are highly volatile and mainly contributed from the supply side, the central bank should examine short-term volatility in relation to monetary policy management, concluded the study.

The central bank should also concentrate on managing the inflation rate in its medium-term targeting framework, said Mr Nuwat.

Do you like the content of this article?
COMMENT (4)