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Thailand: Inflation target stays at 2.8-3.4%

January 3, 2013 The Nation
Inflation is targeted to stay in a range of 2.8-3.4 per cent this year despite concerns over food, particularly meat and fresh vegetables and fruits, whose prices are |sensitive to seasons and natural disasters.
"However, goods won't be in shortage," Watcharee Wimuktayon, permanent secretary for the Com-merce Ministry, said yesterday.

The current market is in oversupply, she said.

The forecast for headline inflation is based on the Dubai crude oil price at US$100-$120 per barrel, the baht at 28.5-32.5 per US dollar and the government's continued relief measures for people.

This year's global economic expansion is expected to be close to last year's, so external factors might not have a large influence on Thailand's inflation.

Prices of consumer goods, including personal items, are expected to see only a slight increase due to the high competition.

The rise in the minimum wage to Bt300 per day across the nation on January 1 is forecast to bump up 2013 inflation by only 0.1 percentage point, as prices of products have already been raised to cope with the new wage in seven key provinces since last April.

In 2012, the Consumer Price Index (CPI), which measures headline inflation, rose 3.02 per cent on higher prices of vegetables and fruits, foods and beverages, and fuel.

The index for vegetables and fruits climbed 12 per cent while food and beverages advanced 4.85 per cent and fuel 4.44 per cent.

In December alone, the CPI climbed 3.63 per cent, the fastest rate in 2012, from a year earlier. In the month, vegetable and fruit prices surged by 16.79 per cent, fuel by 14.40 per cent, cigarettes, liquor and beer by 7.59 per cent, and food and beverages by 4.0 per cent.

Nomura Research noted that separately, the monthly activity data for November surprised significantly on the upside, pointing to substantial upside risks to our 2012 GDP growth forecast of 5.5 per cent.

"These data remain supportive of our view that the Bank of Thailand (BOT) will keep the policy rate unchanged at 2.75 per cent in the meeting on 9 January and indeed throughout 2013," it added.

This year, the ministry will increase the product items in the inflation basket to 450 from 417 |last year to cope with the changing situation. The new items include natural gas for vehicles, gasohol, safety services, healthcare, school buses and interprovincial passenger vans.

Core inflation, which excludes 17 fresh food items and fuel and is calculated from the prices of 300 goods and services, remained benign at 1.78 per cent compared with the same month of the previous year.

According to a study by the Internal Trade Department of the spillover from the rise in the daily minimum wage, large businesses, which account for half of total production and whose labour costs are 0.62-9.61 per cent of total production costs, might not be affected as they have already made adjustments last year.

Small and medium-sized enterprises, which account for the other half of production and have relatively higher labour expenses at 10-30 per cent of total production costs, could feel some shock waves.
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