Thailand: EIC increases inflation projection to 6.1%

The Economic Intelligence Center (EIC), a research house under Siam Commercial Bank, has upgraded its inflation rate projection for this year to higher than 6% before falling to the near the Bank of Thailand’s target range next year.

The EIC increased its inflation  assessment for 2022 to 6.1% from the previous forecast of 5.9%, mainly as a result of external factors such as higher energy prices amid geopolitical conflicts.

Even though the inflation rate should gradually fall to 3.2% in 2023, the rate is expected to exceed the central bank’s inflation target range of 1-3% for the medium to long term because of consistently high energy and food prices, as well as higher cost pass-through from producers on more products, said Somprawin Manprasert, chief economist at the agency.

He said despite the expectation of a gradual decline in the inflation rate, prices of goods and services would still be high compared with the pre-Covid level.

Higher inflation would dampen purchasing power in the household sector, especially among lower-income earners, who are a vulnerable segment, said the EIC.

Mr Somprawin said the economy has been picking up, but the recovery is uneven and fragile amid several uncertainties, in particular the global economic slowdown.

Supported by domestic consumption and tourism, the EIC upgraded its economic growth forecast for 2022 to 3% from an earlier projection of 2.9%, with the outlook for 2023 gaining from 3.7% to 3.8%.

For 2022, the research centre increased its foreign tourist arrival forecast from 7.4 million to 10.8 million.

In 2023, foreign tourists are expected to increase to 28.3 million, representing 70% of the pre-Covid level of around 40 million travellers.

In addition, the EIC upgraded its forecast for private consumption growth this year to 4.4%, rising from 3%.

The research house predicts GDP value would return to the pre-Covid level in 2023, taking two years to reach its potential growth rate in 2024.

Given several international and domestic uncertainties, the economy is in “a transitional period, either from worse to better or better to worse,” according to the EIC.

Mr Somprawin forecasts the central bank will increase the policy rate gradually to contain inflation and support an economic recovery.

The EIC expects the Monetary Policy Committee to hike the policy rate at its two remaining meetings this year, in September and November, by 25 basis points each time, reaching 1.25% by the end of the year.

The central bank raised the rate to 0.75% last month from a record low of 0.5%, which had been unchanged since May 2020.

The EIC predicts the central bank will continue raising the benchmark policy rate next year — three times by 25 basis points each time — putting the policy rate at 2% by the end of next year.