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Commerce Ministry lowers 2014 inflation target to 2.35% as concerns ease

With less concern about drought and lower fuel prices, the Commerce Ministry has lowered its 2014 inflation target to 2.35 per cent, slightly down from 2.4 per cent, but still within the projection of 2-2.8 per cent set earlier.

The ministry also forecasts that raising the VAT (value-added tax) rate to 10 per cent from the current 7 per cent in October next year will boost the monthly inflation rate by 0.1 per cent, or 0.3 per cent each quarter.

The ministry reported yesterday that the Consumer Price Index (CPI) in July grew slowly, by 2.16 year on year, and only 0.08 per cent month on month.

In the first seven months, inflation was 2.23 per cent year on year.

Amparwon Pichalai, adviser to the ministry, said the inflation was low because drought had not caused too much damage to agricultural output and fuel prices were down. The ruling junta's efforts to keep goods prices and utilities costs down also helped, she said.

As a result, the ministry cut its projection for full-year inflation slightly to 2.35 per cent.

The forecast is based on an assumption of an average Dubai oil price of US$95-115 per barrel, from an average in the first seven months of $106.15.

VAT rate

Asked about the effect on inflation next year from the VAT rate increasing by 3 percentage points, the ministry reported that only 50 per cent of goods prices in the inflation basket would be affected.

Most products that will face price increases are consumer goods, but most fresh foods and rental fees are not subject to VAT.

A ministry study found that the VAT hike would push up the annualised inflation rate by 1.2 percentage points.

Last month, prices in the food and beverage sector dipped by 0.18 per cent as the country entered the rainy season and more vegetables and fruits were produced.

Non-food-and-beverage prices decreased by 0.02 per cent year on year.

In the ministry's inflation basket of 450 items, the prices of 178 products increased, compared with 175 in June, while 181 remained unchanged and 88 items decreased from the previous month. Last month, core inflation, which excludes volatile food and fuel prices, was 1.81 per cent year on year and only 0.1 per cent month on month.

Core inflation in the first seven months of the year was 1.51 per cent year on year, well within the Bank of Thailand's target range of 0.5-3 per cent.


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