Intellasia News Services -- Thailand's consumer prices decline as GDP contracts

Thailand's consumer prices decline as GDP contracts
Source: 04-MAR-2009 Intellasia | Bloomberg
4 Mar, 2009 - 7:09:00 AM
Thailand's consumer prices fell for a second month in February as consumers curbed spending amid concern the economy may be sliding into a recession.

Consumer prices dropped 0.1% from a year earlier, after dropping 0.4% in January, the Commerce Ministry said today in Bangkok. The median estimate of 13 economists in a Bloomberg News survey was for a 0.1% gain.

A Bangkok, Thailand, vendor waits along a busy downtown street Wednesday, Sept. 10, 2008. (AP Photo/David Longstreath)

The risk that Thailand's economy may contract this year for the first time in a decade has escalated, the central bank said on February 25 when it extended its most aggressive rate cuts ever. The government, which predicts gross domestic product may shrink this quarter and next, is boosting spending to spur domestic demand as exports tumble.

"The worry is that if the global outlook remains bleak for an extended period of time, it increases the risk of a deflationary spiral," said Ramya Suryanarayanan, an economist at DBS Group Holdings Ltd in Singapore.

The baht fell 0.2% to 36.23 per dollar as of 2:06 p.m. in Bangkok, close to its lowest level in more than two-years. The SET Index of stocks declined 2.6%, poised for its steepest drop since January 29.

Oil Price

Indonesia's inflation slowed to an 11-month low in February, the Central Statistics Bureau said in Jakarta today.

The price of crude oil, almost all of which Thailand imports, has fallen 57% in the past year. Manufacturing production dropped by a record in December as exports shrank and domestic demand waned.

From a month earlier, Thailand's consumer prices rose 1%, the commerce ministry said. The increase was the result of higher oil tariffs, said Usara Wilaipich, a Bangkok-based economist at Standard Chartered Bank Plc.

"This doesn't show that demand is picking up," Usara said. "It reflects higher costs and that actually worsens the economic situation."

The government excise tax, ranging from 36% to 67% on retail oil products such as benzene and diesel, took effect from February 1.

Thailand's core inflation, which excludes fresh food and fuel, rose to 1.8% last month from a year earlier, the Commerce Ministry said today. Economists surveyed by Bloomberg News predicted a 1.3% pace after a 1.6% rate in January.

Lower Rates

"People's purchasing power doesn't show that prices are deflating," Siripol Yodmuangcharoen, permanent secretary at the Ministry of Commerce, said today. "Of more than 400 items we monitor, only 90 have declining demand."

Finance minister Korn Chatikavanij said on February 29 the central bank will probably this year cut its benchmark interest rate from 1.5% to boost growth as the economy in the next few months will be "nasty."

Bank of Thailand policy makers, who have cut borrowing costs by 2.25% points in three meetings since December, next meet on April 8.