The Commerce Ministry is forecasting minimal inflation in the second half of this year, as poor farm product prices have eroded rural consumption, slowing the pace of economic recovery.

The Consumer Price Index (CPI) in the first half of this year rose 1.2% compared with the same period last year. The year-on-year index for June rose by 2% and the monthly index rose by 0.2% from May.
Inflation this year is projected at between 3% and 3.5%.

The low inflation of 1.2% for the first half is based on a 1.6% decline in the food and beverage index, while the non-food index grew 3%, said Suchai Jaovisidha, director-general of the Internal Trade Department.

Ready-to-eat food had the greatest decline of 8% in the first six months, followed by vegetables and fruit, down 6.4%, and egg and dairy products, down 4.4%.

Mr Suchai said that although the rise in oil prices would significantly affect annual inflation, fuel accounted for less than 1% of the total production cost of many necessities. The ministry was monitoring price increases, he said. According to the department, each percentage point increase in the oil price lifts annual inflation by 0.01%-0.05%.

Paithoon Kaewthong, the deputy minister of commerce, said that 11 products had been affected by the increase in the diesel oil rice to 12.90 baht a litre from 8.30 baht last year, with price increases granted for portland cement, pharmaceuticals and electric copper rods.

The department said core inflation for the first six months was estimated to have increased 0.6% from the same period last year.
Core inflation data help the Bank of Thailand formulate long-term monetary policy, and contribute to price stability.

The inflation rate excludes the more volatile prices of raw foods and energy which are fluctuating factors.