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Published on April 23, 2008

Anoma Srisukkasem

The Nation

Headline inflation is now expected to surge to between 4 and 5 per cent this year, much higher than a previous assumption of just 2.8-4 per cent.

Core inflation, which is headline inflation excluding raw food and energy prices, was also raised to 1.5-2.5 per cent, up from the previous estimate of 1.3-2.3 per cent.

The increases in prices show consumers will have to spend more on basic goods this year.

Even with higher income, many people will probably see their purchasing power fall as inflation outpaces the benefit of an improvement in wages.

The bank changed its growth projection this year from 4.5-6 per cent to 4.75-6 per cent.

"We are worried about inflation, which could affect purchasing power. It is useless if incomes rise amid high inflation because the gains would be erased by more expensive goods," said BOT assistant governor Duangmanee Vongpradhip.

"We have to boost income growth in a certain magnitude that is beneficial to actual production, not just to match skyrocketing prices," she said.

The acceleration of oil and commodity prices has been blamed for driving up strong inflationary pressures.

The general belief appears to be that prices will continue to head higher.

The central bank predicted 12 global commodity prices would jump by an average of 35 per cent from last year, compared with its earlier estimates of just 7 per cent.

Crude oil in the Dubai market is projected to trade at US$94 (Bt2,958) a barrel in the next eight quarters.

The oil price could jump dramatically and incessantly in a worst-case scenario, rising from $107 this quarter to $117 in the fourth quarter and to $127 in the first three months of 2010.

Duangmanee, however, believes oil prices will not exceed the worst-case projection, keeping core inflation within a manageable range.

Thailand's exports are predicted to expand more rapidly than previously forecast - by 13.5-16.5 per cent against 9-12 per cent. That was one reason the BOT upgraded its overall economic-growth forecast.