Thailand Facing Disinflation Fight on Oil, Weak Domestic Demand

  • Consumer prices were expected to turn positive in 1Q
  • Government expects inflation to average 1%-2% in 2016

Thailand’s government warned that consumer prices may not turn positive as early as expected this year after slumping crude oil costs pushed down the country’s inflation index for a 12th straight month in December.

An index of consumer prices fell 0.85 percent last month from a year earlier, exceeding the 0.76 percent drop expected by economists, according to data released Monday by the Ministry of Commerce in Nonthaburi outside Bangkok.

“The oil price is a key risk factor for inflation,” Somkiat Triratpan, the ministry’s head of trade policy and strategy, said at a media briefing. “Inflation should be back to positive in 1Q, but there’s uncertainty because oil prices are lower than our estimate.”

Crude oil futures slid 11 percent in December and some forecasters expect prices to fall as low as $15 a barrel amid slowing economic growth in China. Thailand relies on oil imports for more than 80 percent of its energy needs, according to state-controlled PTT Exploration & Production Pcl.

“Disinflationary pressures will likely persist into early 2016 on account of structurally lower oil prices and soft domestic demand,” Weiwen Ng, a Singapore-based economist at Australia & New Zealand Banking Group Ltd. said Monday in an interview, adding that inflation should bottom out in Thailand in the coming months.

Thailand’s core inflation, which excludes energy costs, fell to 0.68 percent in December from 0.88 percent in the previous month.

In Indonesia, inflation slowed to 3.35 percent in December, the country’s statistics office said Monday. That’s the lowest level since at least January 2010, according to data compiled by Bloomberg. Thai inflation should average 1 percent to 2 percent this year if oil prices range from $48 to $54 per barrel, the commerce ministry said.

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