Analysts consider deflation risks

Analysts consider deflation risks

October dip was first in 25 months

People walk past vendors in the Bang Khun Non area of Bangkok Noi on Sunday. (Photo: Apichart Jinakul)
People walk past vendors in the Bang Khun Non area of Bangkok Noi on Sunday. (Photo: Apichart Jinakul)

Analysts are expressing concerns about Thailand's first year-on-year decline in inflation in 25 months, saying the dip in the consumer price index (CPI) reflects growing risks of an economic slowdown and deflation.

BofA Securities, previously known as Bank of America Merrill Lynch, said the October inflation figure marked the first year-on-year decline since August 2021, "falling well below the consensus forecast of a 0.05%" increase.

"These lower inflation figures reflect a growing economic slowdown, in line with our weak consumption data and stalled domestic demand," the investment banking division of Bank of America said in a research note on Tuesday.

The comment followed the Commerce Ministry releasing headline CPI figures on Monday for October, which declined 0.31% from a year earlier and 0.28% month-on-month, a sharp contrast to the 0.3% year-on-year uptick in September.

The decrease was attributed to government subsidies, particularly for fuels and electricity, and a slowdown in food and non-alcoholic beverage sectors.

"Recent inflation data fell below our expectations, indicating the Thai economic recovery, apart from the tourism sector, remains weak," said BofA.

"With declining domestic consumption momentum and slower tourism growth, it is unlikely there will be demand-pull inflationary pressure on core inflation."

Maybank Securities said as core inflation held steady at a low level of 0.7% in October, compared with 0.6% in September, it suggests that lacklustre domestic demand, especially on the investment front, and tepid exports kept inflationary pressures in check.

The brokerage expects Thailand's CPI headline inflation to stay at around 0% for the rest of the year, averaging 1.5% this year.

"There are growing signs the demand shock from the Srettha government's economic policies may be smaller than previously outlined," said Maybank, adding that falling inflation will likely raise real interest rates, affording the Bank of Thailand greater policy room to respond to growth and inflation developments next year.

Kasikorn Securities (KS) said October marked the first month the Thai economy entered a deflation zone, with a year-on-year contraction of inflation and core CPI stable near 0%.

"Thai inflation is considered low compared with other countries in the region, and remained below the target of 2% for six consecutive months," KS said in a report.

Inflation is expected to remain close to zero throughout the fourth quarter, said the brokerage.

Nuttaporn Triratanasirikul, deputy managing director of Kasikorn Research Center (K-Research), said it is too early to state the Thai economy is approaching deflation as GDP continues to expand and there is no major layoff of workers.

Slowing consumption is partly attributed to high household debt, though income did not increase, Ms Nuttaporn told the Bangkok Post.

The think tank maintained its GDP growth forecast for 2023 at 3% on healthy exports in the final quarter.

Though K-Research has not made a forecast for 2024 growth, the centre projects expansion in a range of 3-4%, she said.

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