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With inflation in negative domain, Thailand may enter deflation, warn economists


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With inflation in negative domain, Thailand may enter deflation, warn economists

By The Nation

 

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Bank of Thailand (BOT) senior director Don Nakornthab

 

Thailand is facing a fresh threat of deflation after inflation entered negative territory for the third consecutive month, though economists hope the easing of lockdown measures leads to gradual recovery in the second half.

 

Inflation in May was -3.44 per cent year on year, the lowest in a decade and in the minus territory for a third month in a row. 

 

“Technically, Thailand has entered deflation, marked by a drop in the price of goods and services, with inflation entering negative domain for three months – March -0.54 per cent, April -2.99 per cent and May -3.44 per cent,” said Pimchanok Wonkhorporn, director of the Commerce Ministry’s Trade Policy and Strategy Office. 

 

The dropping price of oil matched with government subsidies in electricity and water have largely contributed to the negative inflation, she told the press on Thursday (June 4). 

 

However, she said, core inflation has expanded 0.1 per cent, suggesting that the price for some goods and services (excluding food and energy items) has risen, so there should not be concerns about deflation. 

 

Separately, Bank of Thailand (BOT) senior director Don Nakornthab said the country was not experiencing deflation from the financial market’s point of view. He said BOT follows the European central banks’ definition of deflation, which takes four conditions into account: 

 

-    Negative inflation for a prolonged period; 

-    Many goods and services experiencing negative inflation; 

-    The five-year forecast on inflation rate is significantly lower than targeted; and

-    The economy contracts combined with rising unemployment. 

 

He said the BOT believes inflation next year will return to positive, as the five-year forecast is 1.8 per cent, which is close to the target of between 1 and 3 per cent. 

 

However, he warned that there is a risk of deflation if the economy experiences deep contraction coupled with a delay in recovery. 

“The BOT has to closely monitor the economic situation and inflation,” he added. 

 

Charl Kengchon, executive chairman at Kasikorn Research Centre, is optimistic that the economy will start recovering in the second half of the year. 

 

“Thailand is unlikely to experience a lost decade like Japan did when it experienced deflation, hitting the vicious cycle of the prices of goods and services falling, consumers not spending due to loss of confidence and the economy contracting subsequently,” he said.

 

He added that deflation in Thailand had been caused by the drop in energy prices and the impact of the lockdown. 

 

Economic activities are returning as lockdown restrictions are being eased, and the economy in the third and fourth quarters should expand on a quarter-to-quarter basis, he said. However, the economy will contract by 6 per cent for the entire year, though it may grow next year and return to pre-Covid crisis level in 2022. 

 

But Amornthep Chawla, head of research at CIMB Thai Bank, was pessimistic. “We have entered deflation now as prices are also falling due to weak demand. People don’t have much money to spend,” he said. 

 

He also warned that the public will suffer hardship once the government’s financial handouts come to an end. He added that the price of energy and other products and services may rise in the next few months, but people may not be earning enough to match that rise in cost of living. 

 

According to CIMB’s projection, the economy will shrink sharply at 8.9 per cent this year, deeper than the contraction in 1998 during the Asian financial crisis. 

 

Source: https://www.nationthailand.com/business/30389069

 

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-- © Copyright The Nation Thailand 2020-06-05
 
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43 minutes ago, Susco said:

 

In Big C extra on 1 June prices of all ready made food, that is LOCAL produce for those who missed it, have been raised by 5 - 10%.

 

This includes the salad bar, bread and all the THAI dishes.

 

This is the second time within a year, so why if there is no inflation?

The prices at Makro seem to have gone down for meats and veggie.

Maybe don´t go to Big C.

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10 minutes ago, hugolars said:

Thai mindset do not allow price reduction on items and services because it cause "face loss". Business rather go bust than doing what is normal which is try to increase sales by price reduction. Also any items that interest farangs automatically cost more because of an mental "farang tax".

You should write a book.

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Financial institutions can come up with whatever result they want when they calculate the rate of inflation/deflation. 

 

It all depends on which items are included or not, and how the numbers are massaged to arrive at the published result. 

 

Anyway, the official number rarely matches with the average consumer's experience. 

 

Yes, the price of gasoline has gone down a lot, which means deflation is you are a taxi driver, or means nothing if you move around Bangkok in the BTS. 

 

And this drop in the price of gasoline won't last anyway... It is already climbing up. 

 

Among the multiple economic problems the country is going to face, deflation should not be high on the list... better focus on unemployment or to search alternatives for mass tourism... 

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3 hours ago, shy coconut said:

Not sure about Thailand, but in the UK there is a seemingly random selection of

items whose price is tracked to determine inflation, it would be impossible to 

track the prices of every single item sold. Perhaps your specific items are not on

the list.

 

It seems that oil prices account for a big chunk of the low inflation rate.

 

Maybe oil prices is the only item included in the Thai index ?

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There are a lot of guestimetes out there.  Going forward there is a lot of variables that can make things worse or better!  This story itself shows points of view from BOT Kasikorn and CIMB which are all different to varying degrees.  That's because their guestimates!

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4 hours ago, shy coconut said:

Not sure about Thailand, but in the UK there is a seemingly random selection of

items whose price is tracked to determine inflation, it would be impossible to 

track the prices of every single item sold. Perhaps your specific items are not on

the list.

 

It seems that oil prices account for a big chunk of the low inflation rate.

It's exactly the same in Thailand, I believe there is some 260 items in the CPI basket of goods:

 

"n Thailand, the most important categories in the consumer price index are Food and non-alcoholic beverages (36 percent of total weight), Transportation and communication (24 percent) and Housing and furnishing (23 percent). Others include: Medical and personal care (6 percent); Recreation and education (6 percent); Apparel and footwear (3 percent); and Tobacco and alcoholic beverages (1 percent)."

https://tradingeconomics.com/thailand/consumer-price-index-cpi

 

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Well yesterday we had bad news on the Thai economy supposedly boosting the Baht, so the normal rules of economics clearly don't apply here and there's no need to worry about deflation. In fact, I'll lay you 100  Baht to a satang that just about every ordinary Thai person would say that falling prices are a blessing. 

 

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10 hours ago, KhunKenAP said:

Meanwhile the Thai Stock Market keeps rising along with the Thai baht. Makes no sense, as there is currently no one in Thailand capable of handling any crisis.

 

 What crisis , everything is under control .

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20 hours ago, bkk6060 said:

The prices at Makro seem to have gone down for meats and veggie.

Maybe don´t go to Big C.

Makro is 50 minutes drive away, Big C is 5 minutes, some of don't have a choice.

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19 hours ago, Brunolem said:

Yes, the price of gasoline has gone down a lot, which means deflation is you are a taxi driver, or means nothing if you move around Bangkok in the BTS. 

 

Not just taxi drivers but anyone who transports goods from A to B and anyone in the chain who subsequently buys those goods.....farmers who transport their goods from the North to the markets of Bangkok, the fall in gasoline prices represents a similar expense reduction as the taxi driver. But this is about falling demand rather than a structural economic issue, one with oil and the other resulting from isolation.

Edited by Trillian
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22 hours ago, Susco said:

 

In Big C extra on 1 June prices of all ready made food, that is LOCAL produce for those who missed it, have been raised by 5 - 10%.

 

This includes the salad bar, bread and all the THAI dishes.

 

This is the second time within a year, so why if there is no inflation?

also cost of bread baked there has gone up 4 baht

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On 6/5/2020 at 10:11 AM, webfact said:

With inflation in negative domain, Thailand may enter deflation, warn economists

Obviously the "economists" who monkeyed with statistics to come up with this ridiculous statement haven't been to a market in a decade or two. 
You can't actively purchase food staples and consumer goods and make a statement like "inflation in negative domain" and keep a straight face. 
For virtually all citizens, deflation would be a good thing as the basics that everyone needs will become more affordable. 
The "economists" are talking about the realm of the filthy riche and wealthy -  Luxury cars and real estate are becoming more affordable <gasp>.  Can't have that!!! 
In the meanwhile, the cost food, shelter, and basic goods for the rest of the lowly plebs will continue their inexorable march higher - but don't worry - "expert" "economists" will juke the numbers and paint a rosy picture for the commoners to read while sitting in their hovels wearing masks. 

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It is likely that it is true we are entering into a period of technical deflation. So many things are ganging up against the Thai economy at once. However, what many of us are wondering is, other than hotel rooms, is anything coming down in price, or will this simply result in massive profiteering?

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