Thai Prices Fall for Fifth Month as Economy Contracts

By Suttinee Yuvejwattana

June 1 (Bloomberg) -- Thailand’s consumer prices dropped for a fifth month in May, the longest contraction in at least nine years, as demand collapsed amid the shrinking economy.

An index of consumer prices fell 3.3 percent from a year earlier, after declining 0.9 percent in April, the Commerce Ministry said today in Bangkok. The median estimate of 12 economists in a Bloomberg survey was for a 2.4 percent decline. The gauge has fallen each month this year, the longest slump since Bloomberg began tracking it in 2000.

“Consumer prices will contract until at least the third quarter,” said Pimonwan Mahujchariyawong, an economist at Kasikorn Research Ltd. in Bangkok. “Local demand is very fragile and hasn’t shown any clear recovery sign yet.”

The worst global economic slump since the Great Depression and domestic political protests have sent Thailand’s economy into its first recession in a decade. Prime Minister Abhisit Vejjajiva said May 28 that Thailand may face deflation, although it’s “under control.” The government is boosting spending to spur demand, and the central bank says the worst may be over.

The Bank of Thailand on May 20 held its one-day bond repurchase rate at 1.25 percent, ending its most aggressive ever string of reductions from December to April. Gross domestic product shrank 7.1 percent in the first quarter, the steepest contraction in a decade. The economy may return to growth in the fourth quarter, the government predicts.

Lower Oil Price

Lower fuel costs compared with a year ago and government measures to help low-income earners, including free bus rides and utilities, contributed to the drop in consumer prices, said Pimpapaan Chansilpa, deputy secretary-general for commerce. The price of crude oil, almost all of which Thailand imports, has fallen more than 50 percent from a record $147.27 a barrel in July last year.

“Consumer prices may pick up from August in line with rising oil prices and the end of the government’s measures,” Pimpapaan told a press conference in Nonthaburi province. “We still maintain our target of 0.5 percent inflation for the whole year.”

Abhisit’s government on May 6 unveiled a four-year, 1.4 trillion-baht ($41 billion) investment plan. His seven-party coalition government is strong enough to pass a borrowing plan and next year’s 1.7 trillion-baht budget, Abhisit said May 20.

Thailand’s core inflation index, which excludes fresh food and fuel, fell 0.3 percent last month from a year earlier, the Commerce Ministry said today. Economists surveyed by Bloomberg News predicted a 0.6 percent gain. The measure increased 1 percent in April.

To contact the reporter on this story: Suttinee Yuvejwattana in Bangkok at Suttinee1@bloomberg.net