Thai Central Bank maintains no evidence of disinflation exists
In a surprising turn of events, Thailand has witnessed three consecutive months of negative headline inflation, marking a rare period of headline deflation. However, this does not signify a general deflationary trend across the economy, as core inflation and consumer price pressures remain positive.
The sluggish domestic demand, in line with slower economic growth, is a key factor behind the falling inflation rate. In June, prices for rice and durian specifically fell due to a high base effect from the previous year, contributing to the overall decline. However, prices for essential consumer goods have continued to gradually increase, in line with a persistently high cost of living. The categories of goods with continuously rising prices are mostly everyday items, such as ready-to-eat food, cooking ingredients, and non-alcoholic beverages.
Despite this, the Bank of Thailand maintains there are no clear signs of deflation in the economic sense, as price declines are primarily in energy and fresh food, while prices of everyday essential goods continue to rise gradually. Inflation forecasts remain low but positive: headline inflation is projected around 0.5% for 2025 and core inflation near 1.0%, with expectations of a slight rise in 2026.
Deflation, typically, implies a broad-based, sustained decline in prices and purchasing power, often linked to economic contraction. Thailand’s situation appears to be a case of headline deflation driven by specific sectors, while core inflation and consumer price pressures remain positive, so it does not meet the classical definition of deflation.
Sathit Talaengsatya, an economist at UOB Thailand, voiced concern over deflation risks following the decline in prices last month, with expectations for continued deceleration in the second half of 2025. UOB Thailand forecasts inflation of 0.6% at the end of 2025, and core inflation at 1.0% this year and 0.9% next year.
K-Research expects inflation to remain in negative territory during the third quarter before returning to positive levels in the final quarter. Energy prices are anticipated to contract by 3.2% this year and by 1.3% next year. The decline in inflation is primarily attributed to supply-side factors, including falling global energy prices, an influx of low-cost imports from China, and a weakening local economy.
In conclusion, Thailand in 2025 is experiencing a notable period of negative headline inflation but no definitive evidence of general deflation given ongoing core inflation and price rises in key consumer categories. The central bank continues to emphasize policy flexibility in response to this nuanced inflation environment.
The Bank of Thailand, despite the negative headline inflation, maintains that there's no clear sign of deflation in the economic sense, as prices of everyday essential goods continue to rise gradually. Sathit Talaengsatya, an economist at UOB Thailand, has expressed concerns over deflation risks due to the decline in prices, but also expects inflation to remain low and positive for 2025.
