Inflation rises as central bank chief says recovery broadens

Headline inflation in Thailand hit 1.07 percent for the month of April, the highest level in 14 months, providing evidence that demand is picking up, a positive indicator of an accelerating economy, as the governor of the Bank of Thailand said the recovery was broadening with export growth translating into greater purchasing power for middle- and upper-income households.

Optimism about the Thai economy was also becoming more widespread as consumer confidence rose to a level not seen in over three years, the University of the Thai Chamber of Commerce reported, and confidence among small and medium size businesses (SMEs) hit a one-year high during the month of April, according the research unit of Thai Military Bank.

Thailand’s economic policymakers have been hoping for a return of modest inflation – between 1 percent and 4 percent annually – as rising prices are a strong sign that the economy is gaining steam. Consumer goods prices in Thailand rose in April, with growth in the headline inflation rate breaking through the lower end of the official target rate, of 1 percent for the first time in 14 months. Core inflation, meanwhile, rose 0.64 percent.

While the rise in inflation is a good sign, interest rates will probably remain steady at the 1.5 percent rate they have been since 2015. Bank of Thailand Governor Veerathai Santiprabhob told Bloomberg news agency that the recovery in domestic demand is still at an early stage and so monetary policy should remain accommodative to nurture the recovery.

Nonetheless, the recovery is becoming broader based, Veerathai said, with the middle classes feeling its effects to a greater extent than before. While he attributed that to a spillover effect from improved exports, he cited rising imports as evidence that businesses are investing in capital good and consumers are beginning to exercise their purchasing power more than in recent years.

Unfortunately, weak prices for many of the crops and agricultural goods grown by Thailand’s farmers were depressing incomes in rural areas, meaning that people in the provinces and in lower income groups were still struggling.

In general, however, consumers had a sunnier view in April. The consumer confidence index reached 80.9 in April, up from 79.9 in March and 79.3 in February. The April level was its highest level in 40 months, according to the University of the Thai Chamber of Commerce.
The University said the optimism was a result of the economy’s prospects in relation to the recovering world economy and a slight fall in value of the Thai currency, which should help exports.

Meanwhile, general confidence among SMEs hit a one-year high during the first quarter of this year, and income confidence among SMEs hit a five-year high, according to Thai Military Bank.

“The major factor for improving income confidence is new orders from SME’s existing customers, benefits from the government’s economic stimulus measures, and seasonal tourism,” TMB’s research director said.