2008 Inflation reaches 11-year high

The BOT core inflation target is 0 to 3.5 per cent. Core inflation excludes the price of oil and food.

Duangmanee Vongpradhip, the central bank assistant governor said skyrocketing inflation was a result of high volatility from oil and commodity prices, which has caused headline and core inflation rates climbing up relentlessly the past months, far exceeding its expectations.

The surge has significantly lowered the purchasing power of consumers, a trend that is expected to prevail next year.

Core inflation is likely to exceed the target of 3.5 per cent to as much as 4 per cent next year, while the headline inflation number is estimated to between 5 and 7.5 per cent.

The Kingdom's economic growth forecast, however, was revised slightly lower to 4.8-5.8 per cent from 4.8-6 per cent.

It was expected to range between 4.3-5.8 per cent next year, compared with 4.5-6 per cent in the previous estimation.

Duangmanee dismissed concerns that the new target may be breached, saying the situation was fuelled by external factors beyond our control.

But the BOT continued to closely tackle the problem and bring it back on track over the next eight quarters.

"It is not a mistake that core inflation had risen beyond the target of 3.5 per cent if we can explain it and bring it down. Many central banks also faced core inflation rate exceeding their targets," she said.

The inflation rate could continue to surge, spurred by inflation expectations even though oil and commodity prices had eased, she warned.

According to the Monetary Policy Committee (MPC), core inflation could possibly exceed the new target for a while, if policy interest rate is at 3.5 per cent per year over the next eight quarters.

It considered the upside risk to inflation from continued inflation expectations, surging oil and commodity prices and a weaker baht.

The BOT signalled that an inflation ceiling of 3.5 per cent was not a proper target under the current situation.

The new target will be jointly set by the Ministry of Finance and the BOT when new board members and a Monetary Policy Committee had been approved.

High inflation has apparently eroded consumption and investment while exports could grow higher than expected, thanks to global demand.

The BOT estimated total consumption to grow 3-4 per cent this year, compared with a previous forecast of 4.5-5.5.

Total investment is projected to expand 4.3 - 5.3 per cent, lower than 8.5-9.5 per cent in earlier projection.

Export value would expand by 16-19 per cent, compared with the previous forecast of 13.5-16.5 per cent.

This is under the assumption the world economy would grow 4.8 per cent this year, improving from an earlier projection of 4.3 per cent.

Duangmanee said the government's latest stimulus package may boost growth slightly by 0.1-0.3 per cent.