Thailand May Suffer Higher Inflation in 2022 as Groceries Keep Rising

Krungsri Research Center revised the prediction for Thailand’s headline inflation in 2022 after the Consumer Price Index (CPI) soared to an 8-month high in January on the hike of global crude oil prices, and increasing food costs.

The center increased its inflation forecast for 2022 to 2.0 percent (from 1.5 percent) to reflect the rapid acceleration of inflation, which is anticipated to remain over the official target through 1Q22. The upgrade came after the Ministry of Commerce reported that Thailand’s Consumer Price Index (CPI) increased 3.23 percent in January, exceeding the market’s expectation of 2.40 percent.

Inflation has increased sharply due to a low base effect compared to last year and consistently high global crude oil prices. The latter has been caused by accelerating demand outpacing supply through 1H22 before abating in 2H22.  Additionally, escalating tensions between Russia and Ukraine would exacerbate a price spike, particularly those associated with higher-than-expected oil prices. Also, it may result in higher manufacturing costs.

In terms of the benchmark interest rate, Krungsri Center expects that the Monetary Policy Committee will keep policy rates unchanged from their historic lows of 0.50 percent at its 9 February meeting, as consumer purchasing power remains weak with high household debt and the recovery remains fragile. Thus, accommodative monetary policy is essential, despite inflationary pressures having increased due to supply-side issues linked to higher energy costs.