It's hard to find a leader anywhere these days who will argue the case for faster inflation. Politicians would rather drink hemlock than call for a renewed acceleration; they are often too busy nodding sympathetically at what their opponents call a cost-of-living crisis. But there is a kingdom where calling for more elevated prices, sooner, isn't off limits. In fact, the government embraces the concept.
That place is Thailand. The country didn't enjoy a big growth surge after it reopened from Covid, and the economy could do with a lift. It also missed the worst of the price increases that rocked many nations. If there is an inflation problem, it's one of scarcity. Deflation seems like a graver danger. Just ignoring the issue and counting your blessings that it's not a surge isn't constructive. Alan Greenspan, the former Federal Reserve chair who recognised a similar jeopardy in the US in the early 2000s, called it a rare but corrosive disease.
In theory, there is an easy solution: cut interest rates. A reduction could not only give the expansion a lift, but help nudge inflation back up toward the central bank's goal. Consumer prices barely rose in April. They fell for the prior six months and haven't been within the Bank of Thailand's (BoT's) goal of 1%-3% since early last year. Premier Srettha Thavisin is certainly very keen on easing borrowing costs. The monetary authority is resisting. Things seem stuck.
So after asking nicely, and at times not so politely, the cabinet is trying a new tack. Finance Minister Pichai Chunhavajira said his ministry and the BoT would review the current inflation objective. Mr Pichai reckons 1%-3% might be too low. The idea is to portray the bank as being even further behind the eight ball on inflation. If you are aiming for something higher than current parameters allow, then policy ought to match the ambition. In other words, slash borrowing costs to the point where inflation moves consistently higher.
I am sceptical that Mr Pichai or Mr Srettha would really want to live with the consequences of markedly greater moves up, but that is a matter for the long haul. Civilian administrations come and go every few years in Thailand, with military coups a predictable part of political and economic life. What matters for the current crowd is cranking up growth in the immediate term.
The bank is unimpressed by this latest gambit. The deputy governor said last week that a shift now would be undesirable and suggested the current rock-bottom inflation is a passing phase. Prices will pick up in the fourth quarter and, besides, gross domestic product gained 1.5% in the first three months of the year, better than anticipated. The BoT has long feared that Mr Srettha's fiscal ambitions, which include a so-called digital wallet for 50 million adults, risks overheating the economy. It also suspects that subsidies are constraining prices.
Seeking to alter the CPI goal isn't quite a gimmick. There's a broad desire to scrutinise the work of central banks -- and not just in the developing world. Australia appointed an independent review of the Reserve Bank of Australia (RBA) in 2023 that recommended keeping the mandate for inflation of 2%-3%, but was scathing of the RBA's internal culture. The Bank of England asked former Fed boss Ben Bernanke to dive deep into forecasting. In 2020, an overhaul of the Fed's framework stopped short of lifting the inflation target from 2%, but declared it was best defined as an average of 2% over time. The European Central Bank tweaked its definition of price stability during the darkest days of Covid to support the economy.
That isn't to say changing the goalposts is a great idea. Fast rate cuts would probably push the baht still lower; the currency is among the worst performers in Asia this year, retreating 7% against the dollar. Only the yen has fared worse, even after Tokyo spent US$62 billion (2.3 trillion baht) to cushion its drop. There are other negatives: Households would be left with less spending power, while profit margins would be hurt, and hiring and investment would suffer, wrote Tamara Mast Henderson of Bloomberg Economics. That's assuming the higher target gets implemented.
It doesn't do a lot for the integrity of institutional arrangements when a central bank is under sustained attack. Nor is the pressure necessarily going to abate if Mr Srettha passes from the scene. Paetongtarn Shinawatra, a daughter of the governing party's founder and an ascendant political star in her own right, joined the fray. She called the BoT's autonomy an obstacle to fixing economic problems. The BoT doesn't seem to have a strategy other than digging in its heels and, perhaps, biding its time.
As interest rates around the world start to retreat toward the end of the year -- the ECB is projected to cut this week -- the central bank will give a little bit. The chances of inflation spiralling look remote, with or without an edict from the political class. ©2024 Bloomberg
Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Previously, he was executive editor for economics at Bloomberg News.