top view of boats on beach

Why Does Inflation Remain Moderate in Thailand While Rising in Many Other Countries?

Inflation in foreign countries has risen sharply. This has led the central banks in many developed countries to begin their tightening monetary policy faster.

The US and UK inflation rates in November were 6.8% and 5.1%, respectively, while Thailand’s inflation rate was 2.7% (as of Nov. 21), which is still much lower than those countries.

There are 2 main reasons why Thai inflation is lower than foreign inflation.

First, the Thai economy is in the early stages of recovery. It will probably take until early 2023 for the economy, which is up to 20% dependent on tourism, to return to pre-pandemic levels. For now, incomes and employment remain weak, keeping demand-side inflationary pressures low.

This differs from foreign economies, which have recovered rapidly and aim to return to pre-COVID-19 pandemic levels. Domestic consumption has risen rapidly in many countries, thanks in part to continuously large-scale stimulus measures. In addition, there are still supply chain difficulties at the moment, which is inflationary for the strong increase in demand.

Second, Thailand has a relatively low dependence on foreign raw materials for manufacturing, which has not increased costs for manufacturers very much. However, there are exceptions in energy products, where the government has taken measures to control and freeze oil prices, electricity, and cooking gas.

Passing on higher costs to consumers is difficult given the current sluggish demand. Inflationary pressure in this period is therefore coming from supply-side factors, especially energy prices. These are expected to ease in the second half of 2022.

Leave a Reply