The Commerce Ministry has revised its forecast for Thailand's inflation rate this year upwards from 4-4.5 per cent to 4.5-5 per cent, due mainly to the continued rise of oil prices beyond expectations.

The ministry reported yesterday that the country's inflation in July rose 4.4 per cent year-on-year, but it was the lowest rate since June last year when inflation stood at 3.8 per cent. The July rate was also below the market's estimate of 4.6 per cent, and marked a sharp fall from the previous month when inflation reached 5.9 per cent.

The inflation rate dropped because the government ended fuel subsidies in June last year and the effects of that adjustment are no longer being felt, the ministry said.

However, the ministry had used Dubai crude oil prices to calculate its forecast for inflation, based on an average of US$55 to $60 per barrel. Prices had since escalated to between US$61 and $66 per barrel, pushing domestic fuel prices up from Bt26-Bt27 per litre to Bt28-Bt29.

 The ministry's permanent secretary, Karun Kittisataporn, said rising oil prices had exerted the main direct effect on Thailand's inflation.

"However, we believe that the country's inflation will slow down to below 4 per cent for the remainder of the year," he said.

In the first seven months of the year, inflation reached 5.7 per cent, due to higher fuel costs and fresh goods prices. The petrol sector contributed a 1.4-per-cent increase, fresh vegetable and fruit prices rose slightly by 1.1 per cent, while chicken and egg prices remained unchanged.

The non-food and drink product category also recorded a 0.3-per-cent increase in July, compared to June, because of fuel price hikes, and the rising cost of consumer goods and public transportation.

Core inflation increased 2 per cent year-on-year last month, unchanged from June.

Meanwhile, the cost of production index rose by 9.2 per cent in July, compared with the same period last year. The rate was 0.4 per cent lower than June because of decreases in the cost of agricultural raw materials.

 Although rising oil prices have affected overall costs of production, the Internal Trade Department is closely monitoring the prices of all goods. Only some products that have suffered a heavy impact from higher oil prices will be permitted to increase their prices over the rest of this year, Karun said.

Petchanet Pratruangkrai

The Nation