Introduction to Thailand’s Inflation
Thailand’s inflation rate has been on a decline for five consecutive months, with the latest August numbers showing a 0.79% drop from the previous year. This decrease is primarily attributed to weaker energy and fresh food prices. The Ministry of Commerce expects this trend to continue, forecasting further declines in the inflation rate for the rest of the year.
Current Inflation Trends
The headline consumer price index (CPI) has been below the Bank of Thailand’s target range of 1-3% for six consecutive months. According to Natiya Suchinda, deputy head of the ministry’s Trade Policy and Strategy Office, the headline CPI is expected to fall by 0.66% year-on-year in the third quarter and by 0.24% in the final quarter of 2025. The full-year inflation rate could potentially be negative, given that it has averaged only 0.08% in the first eight months of 2025.
Core Consumer Prices
Despite the decline in headline CPI, core consumer prices, which exclude volatile energy and fresh food prices, have continued to increase. The core CPI rose 0.8% in August from a year earlier, with an average increase of 0.94% for the year to date. This indicates that while certain prices may be decreasing, the overall cost of living is still experiencing some level of inflation.
Monetary Policy Adjustments
In response to the slowing economy, the Bank of Thailand cut its key interest rate by 25 basis points to a near three-year low of 1.50% last month. The next rate meeting is scheduled for October 8, and some economists anticipate a further reduction in interest rates to support economic growth.
Rethinking Inflation Targeting
Outgoing central bank governor Sethaput Suthiwartnarueput has suggested that it may be time to move away from specific inflation targeting. He believes that price trends are increasingly being influenced by supply shocks that monetary policy is not well-equipped to handle. Thailand has regularly missed its official inflation target since the introduction of a target range in 2020. Mr. Sethaput argues that the focus on a specific headline number has proven to be counterproductive, as it pressures rate-setters to cut borrowing costs without considering the implications for growth and financial stability.
Future of Inflation Targeting
Mr. Sethaput proposes a more flexible inflation-targeting regime, where the focus is on keeping inflation low and stable rather than adhering to a specific numerical target. He emphasizes that the key is to avoid high inflation, unstable inflation, and deflation, while allowing for more flexibility in response to changing economic conditions. The task of implementing this new approach will fall to Vitai Ratanakorn, who will succeed Mr. Sethaput as the central bank governor on October 1.
Conclusion
Thailand’s declining inflation rate and the potential for negative inflation have significant implications for the country’s economic policy. The suggestion to move away from specific inflation targeting and adopt a more flexible approach may provide the central bank with more room to maneuver in response to changing economic conditions. As the economy continues to evolve, it will be important to monitor the effectiveness of this new approach and make adjustments as necessary to ensure stable and sustainable economic growth.
