Thai Inflation Eases to Six-Month Low as Fuel Prices Slide

Thailand’s inflation eased to a 6-month low in September as fuel prices slid, countering an increase in food costs after the worst floods in at least 50 years damaged crops.

An index of consumer prices climbed 4.03 percent from a year earlier, the Ministry of Commerce said in Nonthaburi province outside Bangkok today, compared with a 4.29 percent pace in August. The median of 14 estimates in a Bloomberg News survey was for a 3.95 percent gain.

Slower inflation gives the Bank of Thailand more room to pause after six interest-rate increases this year and join neighbors from Indonesia to Malaysia in shielding growth from a faltering global recovery. The central bank may cut projections for economic expansion and inflation expectations aren’t likely to rise, Governor Prasarn Trairatvorakul said Sept. 24.

“Rising vegetable prices from the floods were countered by falling oil prices, which have more weight in the inflation basket,” Pornthep Jubandhu, an economist at Siam Commercial Bank Pcl in Bangkok, said before the release. “The governor has also signaled a higher possibility of a rate pause this month.”

The benchmark SET Index of stocks slumped 4.9 percent as of 3:04 p.m. local time amid a tumble in Asian stocks, while the baht weakened 0.5 percent to 31.3 per dollar, according to data compiled by Bloomberg.

Flood Toll

“I expect the central bank to keep its key interest rate unchanged at the next policy meeting,” Yanyong Phuangrach, the permanent secretary for commerce, said at a briefing today. Flooding won’t have a significant impact on inflation through crop damage since vegetables account for just 1.4 percent of the consumer-price index’s goods basket, he said.

Core inflation, which excludes fresh food and fuel prices, accelerated to 2.92 percent. The central bank uses core inflation to guide monetary policy and aims to keep it at less than 3 percent. The median of 12 estimates in another Bloomberg News survey was for a core reading of 2.9 percent.

The death toll from flooding in Thailand over the past two months rose to 212, and 25 provinces remain submerged, the Department of Disaster Prevention & Mitigation said on its website today. Heavy rain since July 25 has caused inundations in 58 of the country’s 77 provinces, it said.

“This flooding is the worst in at least 50-60 years,” Commerce Minister Kittiratt Na-Ranong said last month.

Impact on Prices

Price pressures from flooding are expected to be short term and the Bank of Thailand won’t take temporary factors into account for monetary policy, Mathee Supapongse, a director of the central bank, said Sept. 30.

Thai retail fuel prices dropped as much as 16 percent in September from late August on government measures and a fall in crude oil costs, Energy Policy and Planning Office data show.

Prime Minister Yingluck Shinawatra’s administration on Aug. 27 reduced diesel and gasoline tariffs by ending contributions to the national oil fund, which were funded by levies on fuels.

Yingluck, whose Pheu Thai party won the July 3 general election, has also pledged to boost the daily minimum wage to 300 baht ($9.6), almost double the current level in some parts of the country, and buy rice from farmers above market rates.

The Bank of Thailand raised its key rate in nine steps to 3.5 percent by Aug. 24 from 1.25 percent at the start of July 2010. It next meets to decide borrowing costs on Oct. 19.