Thailand Inflation Undershoots Target Again as Economy Faces Uncertainty Ahead

By Amanda Lee and Fabiana Negrin Ochoa

Thailand's inflation stayed low in November, undershooting the central bank's target and signaling continued weakness in an economy that faces an uncertain outlook in the year ahead.

Headline inflation was at 0.95% last month compared with the same period a year ago, government data showed. That was up from September's 0.83% reading, but still below the Bank of Thailand's target of 1.0% to 3.0%.

November's print marks a sixth straight month of below-target inflation. The weaker-than expected result could resurface concerns about deflation at a delicate time for the Thai economy, which is vulnerable to fallout from rising trade tensions between China and the U.S.

Whereas others in the region have struggled with too-hot inflation, Thailand has had the opposite issue. The Southeast Asian economy has yet to regain its footing since the pandemic, grappling with persistently low inflation and slow growth. That's put pressure on the BOT to lower borrowing costs.

The central bank made its first rate cut in over four years in October to lift the economy and address high levels of household debt. It has flagged concern about consumer confidence declining on worries about high living costs and sluggish economic growth.

A stronger-than-expected third quarter signaled some improvement but progress has been uneven. That's added to calls from the government to ease rates further.

Remarks from Thailand's finance minister this week suggested a rate cut is possible due to low inflation, said Barnabas Gan, acting group chief economist and head of market research at RHB Bank.

The BOT governor has stated that rates alone can't address all economic issues, and that policy decisions will depend on developments, Gan said. The governor has also said the central bank will maintain a flexible stance to address high uncertainties in the global economy in the coming year.

Most economists think the BOT will line up rate cuts next year but opt to stay on hold this month, as it weighs other factors like currency stability and household debt.

The baht has weakened since the BOT's last meeting, so there is no need to rush to weaken the currency and help the economy's exporters, HSBC economist Aris Dacanay said in a report.

"Helping guide the deleveraging of Thailand's household debt is still the main agenda of the BOT," he added.

November's inflation look more flattering if adjusted for seasonality, Dacanay added, with core inflation--which excludes private road transport and accommodation costs--holding its ground. But it still creates some risk of a December cut, he said.

Complicating matters is an increasingly uncertain trade landscape.

Increased U.S. tariffs on exports from countries like China could divert trade to the benefit of some economies in Asia, but Thailand isn't likely to be one, a report by Nomura research analysts found.

Around a quarter of Thailand's imports come from China, and over the past five years, that share has been on the rise, the report said.

Higher tariffs on China could spur even more low-priced goods to enter the country.

While the availability of low-priced goods is a positive for consumers and could keep inflation at bay, it puts countries with already very low inflation, like Thailand, at risk of deflation, Nomura said.

Write to Amanda Lee [e-mail] and Fabiana Negrin Ochoa at [e-mail]

(END) Dow Jones Newswires

12-04-24 0605ET