Display mode (Doesn't show in master page preview)

22 Mar 2005


Impact of Diesel Price Floatation on the Thai Economy


The government's upward adjustment in diesel fuel prices by Bt3 per liter may adversely affect the country's inflation rate. Inflationary pressure will be evidently reflected in the Consumer Price Index (CPI) from the second quarter of this year onwards. Kasikorn Research Center (KRC) expects that Thailand's inflation rate in the second, third and final quarter of this year will edge up to 3.7, 3.8 and 3.9 percent, respectively, over the 2.7 percent in the first quarter. Meanwhile, the inflation rate for the entire year may average 3.5 percent, in comparison to KRC's prior projection of 3.0 percent. (However, our projection for core inflation this year will be kept intact in a range of 1.0-1.2 percent.) Based on our calculations, it was found that hikes in oil prices may put a dent in GDP growth, dropping it lower than our previous projection. However, the fact that the government is expected to shift to adopting an expansionary fiscal policy to sustain the country's economic growth (whilst giving priority to price stability and inflation in pursuing monetary policy) induces KRC to maintain our projection for 2005 GDP growth at 5.2 percent. In the meantime, we will keep monitoring various factors and variables that may influence economic growth - particularly the GDP for the first quarter - prior to making any adjustment for our projections.