The Bank of Thailand predicts headline inflation will exceed the target rate in the early part of this year, forced up by rising raw food and energy prices.
The central bank's Monetary Policy Committee (MPC) meeting on Wednesday made the assessment, said MPC secretary Piti Disyatat.
According to the central bank's inflation targeting framework, the headline inflation rate is in a range of 1-3% for 2022 and the medium-term horizon.
Upside risks to inflation have increased, said the MPC. In particular, cost pass-through from producers to consumer prices could increase if energy and raw food prices remain elevated for longer than expected, or if the supply constraint problems broaden to other goods.
The average inflation rate for full-year 2022 and medium-term inflation expectations remain within the target range, the MPC said. There is no indication of broad-based increases in the prices of goods and services, while demand-side inflationary pressures remain subdued, said the committee.
"Even though prices of goods and services have not been rising broadly, higher raw food and energy prices have been increasing the cost of living and affecting low-income people," he said.
According to central bank data, the cost of food and beverages for low-income households represents 45% of their total income, compared with 26% for a high-income household. A low-income household is defined as earning no more than 22,665 baht per month, while a high-income household earns more than 51,000 baht per month.
Mr Piti said the rate of raw food price increases has been below 7-8%, which is not a huge concern. Rising pork prices due to African swine fever are leading to higher raw food prices, and it will take around 7-8 months to get the epidemic under control.
However, rising energy prices mainly depend on external factors, especially global oil prices and geopolitics. Therefore, higher energy prices could be around for longer than expected, he said.
Energy consumption is more difficult to change than food consumption. For instance, consumers can choose to eat non-pork meats if prices rise, but they have few alternatives to petrol, Mr Piti said.
The central bank forecasts the Dubai crude oil price to be around US$85 per barrel in the first quarter of this year, gradually declining to $70 for the rest of the year, from its current price of more than $90.
There remains a need to monitor movements of global energy prices and domestic goods and services prices, as well as the possibility of rising wage pressures, said the MPC.
The committee voted unanimously on Wednesday to maintain the policy rate at 0.50% after assessing the Thai economy is continuing to recover, with the Omicron variant exerting only limited pressure on the public health system. The downside risk to growth had improved. However, the MPC said there remained a need to monitor pandemic developments going forward.
The committee views an ongoing accommodative monetary policy as supportive of economic growth. In addition, the MPC said the Thai economy in 2021 likely expanded faster than previously projected and was continuing into 2022, driven by higher merchandise exports and increased foreign tourist arrivals as travel restrictions have been eased faster than expected.
The MPC may review its Thai economic growth projection for 2021, but it would maintain the growth rate for this year, Mr Piti said.
The committee currently predicts the Thai economy grew by 0.9% in 2021, and will expand by 3.4% and 4.7% in 2022 and 2023, respectively.
