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Inflation may reach double digits in Q3

 


June 14, 2008

THAILAND/ECONOMY
Inflation may reach double digits in Q3

Thailand's annual inflation rate may reach double digits during the third quarter of this year if oil prices stay at current high levels, Reuters reported Friday, quoting the central bank.

"It's possible that we will see it in certain months because of a low base last year," Amara Sripayak, the Bank of Thailand's chief economist, told reporters, referring to the third quarter.

The central bank has repeatedly said it is closely watching the annual inflation rate which was 7.6 percent in May, its highest for nearly ten years, after a 6.2 percent rise in April.

Analysts expect it to go higher and the latest comments by central bank officials suggest they are concerned.

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Bank of Thailand Governor Tarisa Watanagase said late on Thursday inflation could hit double digits if consumers feel compelled to buy because they fear prices will be more expensive in the future.

Tarisa said raising interest rates would normally slow inflation by reducing consumer spending, but it might also backfire if it induced people to spend more to beat rising prices fuelled by soaring oil costs.

"Psychologically, people might rush to spend more if they expect sharply higher inflation ahead," Tarisa told Reuters.

"If that is the case it might be possible," she said when asked if Thai inflation could reach two digits later this year.

The Bank of Thailand has kept its policy interest rate unchanged at 3.25 percent since July 2007, but it has signalled it would raise rates if inflation accelerated.

The central bank is expected to raise interest rates at its next policy meeting on July 16.

Higher rates could help ease inflation, but could also hurt economic growth at a time when Thailand's economy is slowing due to the cost of imported oil and renewed political uncertainty.

"Managing inflation is a delicate job. As we are the agency looking after it we will try to curb steep price spikes," Tarisa said.

Amara said there would have to be a strong surge in prices for average annual inflation to reach two digits this year. She noted that inflation averaged 5.8 percent from January to May.

"If it hits 10 percent for the year, that means it must rise a lot in the remaining 6-7 months. But that will also depend on oil prices," she said, adding she did not expect to end the year with double digit inflation.



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