Monday, July 15, 2024

Thailand’s Prolonged Low Inflation Crisis: Economic Risks and Urgent Need for Government Action

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Thailand Faces Economic Challenges Due to Prolonged Low Inflation

Thailand’s economy is under threat from an extended period of low inflation, a situation that Deputy Finance Minister Paopoom Rojanasakul finds alarming. The nation’s inflation rates have consistently remained below the Bank of Thailand’s set target range of 1-3%, sparking concerns about economic stagnation and the need for prompt governmental action.

For over a year, both core inflation and headline inflation in Thailand have failed to meet the central bank’s targets. “We have been out of the inflation range for a year now. No country would allow inflation to stay out of the target range for such an extended run. It’s typically considered a red flag needing urgent attention if it happens for just 3-4 months,” Mr. Paopoom explained.

He further elaborated on the consequences of such low inflation: reduced consumer spending and, thus, stagnant price increases on goods. This results in a minimal flow of money through the economy—a situation that demands immediate resolution.

Despite the observed price increases in several items over the past five years, official figures reveal that both core and headline inflation rates linger below the desired target. The June data from the Commerce Ministry highlighted a deceleration in headline inflation, with a notable slowdown in fresh food prices and the fading impact of last year’s low base electricity prices.

The Headline Consumer Price Index (CPI) in June experienced a modest rise of 0.62% from the previous year, a downturn from May’s 1.54% annual increase. The core CPI, excluding volatile items like food and energy, rose merely 0.36% year-on-year in June, marking a 0.41% increase in the first half of 2024.

“These inflation levels reflect the effects of fiscal policy acceleration. Without such measures from the start of the year, we might be facing an inflation rate of around 0.2%, a rate that could have significant economic repercussions,” Mr. Paopoom remarked.

To combat these economic challenges, the Thai government plans to stimulate economic growth, which currently stands at an unsatisfactory rate of 2%. Proposed measures include tax incentives designed to boost tourism in secondary cities—already approved by the cabinet—and a 100-billion-baht soft loan scheme from the Government Savings Bank.

Furthermore, the Cabinet has acknowledged the draft of the 2024 additional expenditure budget act, aimed at economic stimulation through the digital wallet scheme, amounting to 122 billion baht. This initiative is slated for consideration in the House by mid-July.

In tandem with fiscal measures, Mr. Paopoom emphasizes the crucial role of monetary policy, particularly interest rates, in addressing the economic and inflationary challenges facing Thailand.

Additionally, the government reported a significant increase in tourism, with foreign visitors in the first half of the year reaching 17.5 million—4.5 million more than the same period in the previous year. This rise in tourist numbers has injected approximately 200 billion baht into the economy through tourism revenue.

Alexandra Bennett
Alexandra Bennetthttps://www.businessorbital.com/
Alexandra Bennett is a seasoned business journalist with over a decade of experience covering the global economy, finance, and corporate strategies. With a Bachelor's degree in Economics and a Master's in Business Journalism from Columbia University, Alexandra has built a reputation for her insightful analysis and ability to break down complex economic trends into understandable narratives. Prior to joining our team, she worked for major financial publications in New York and London. Alexandra specializes in mergers and acquisitions, market trends, and economic

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