A recent increase in domestic diesel prices is fuelling fresh concerns about inflation as Thailand's Manufacturing Production Index (MPI) fell by 5.13% year-on-year in March, attributed to the sluggish automotive industry, says the Office of Industrial Economics.
"Higher diesel prices will cause operating costs to increase, especially for the steel, cloth bleaching and dying, and fundamental chemical sectors," said director-general Warawan Chitaroon.
The board of the Oil Fuel Fund Office resolved to increase the retail prices of diesel by 0.5 baht to 30.94 baht a litre, effective on April 20 after the diesel excise tax cut of one baht expired on April 19.
Authorities started with the 0.5-baht increase and are likely to gradually increase diesel prices to improve the liquidity of the loss-ridden fund, according to media reports, said Veerapat Kiatfuengfoo, director-general of the Energy Policy and Planning Office.
"Increasing costs in the manufacturing sector can lead to higher product prices, affecting the cost of living and eventually leading to inflation," said Mrs Warawan.
The MPI in March was 104 points, down 5.13% and declining for 18 consecutive months.
She said the decrease was mainly because of lower car manufacturing for eight consecutive months as domestic sales fell amid concerns over high household debt levels.
Car exports to the Philippines and Indonesia fell in the same month as demand sagged.
Mrs Warawan expects the MPI to rise in the second quarter, attributed to state budget spending and growing tourism, which help the food and petroleum industries.
In March, oil products increased by 5.3% year-on-year as demand for travelling activities rose.
The amount of cassava-derived starch products increased by 47.6% year-on-year thanks to a larger harvest and decline of a plant disease.
Animal feed rose by 8.4% as exports increased for pet owners and demand grew among Thai pig farmers. Sugar decreased by 25.2% as cane harvests fell following a drought.
During the first three months of this year, the MPI fell by 3.65% year-on-year to 100.8 points on average, with capacity utilisation at 60.4%.