Thailand Steps Up Inflation Fight With Subsidies, Price Caps


Thailand is stepping up its battle against inflation by extending price caps on dozens of essential goods for another year and channeling a share of profit from oil refiners to fund energy subsidies for an extended period.

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(Bloomberg) — Thailand is stepping up its battle against inflation by extending price caps on dozens of essential goods for another year and channeling a share of profit from oil refiners to fund energy subsidies for an extended period.

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The government will continue controlling prices of more than four dozen essential goods and services such as rice, sugar, medicines, fertilizers and healthcare services until June next year, according to Commerce Minister Jurin Laksanawisit. A state price monitoring panel also ordered steps on movement of corn products to prevent a price surge, he said in a statement.

Prime Minister Prayuth Chan-Ocha expects to collect as much as 25.5 billion baht ($711 million) through the profit-sharing deal with refiners and use the proceeds to keep a fuel subsidy program going for another three months. Thailand, a net oil importer, is struggling to keep retail fuel prices in check with its currency tumbling to the lowest level in more than five-years, which has in turn pushed up the costs of imported energy and other raw materials. 

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The steps to rein in the increase in cost-of-living has so far had minimal impact in curbing headline inflation, which breached the central bank’s 3% upper tolerance limit in January and is more than double that level now. The Bank of Thailand, on its part, has kept borrowing costs steady at a record low, although central bankers are increasingly emphasizing the need to raise rates soon to cool inflation from an almost 14-year high of 7.1%.

“The measures announced so far still have limited impact on the government’s fiscal position,” Nomura Holdings Inc. analyst Euben Paracuelles said. “But this is likely only just the beginning and I won’t be surprised that at some point they will bring out the fiscal bazooka given the elections, and inflation still persisting.”

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Freezing prices of essential goods when input costs are steadily rising may become unsustainable in the long term and lead to shortage of products, according to Jurin. 

Shares Hit

PTT Pcl, Thailand’s largest energy company, led a decline from oil refiners and retailers following the profit-sharing proposal. PTT fell as much as 3.6% to its lowest level since November 2020, while Bangchak Corp Pcl tumbled as much as 9.3% and Thai Oil Pcl dived as much as 7.5%. Star Petroleum Refining Pcl, a unit of Chevron Corp., slumped as much as 14.5% and Esso Thailand Pcl, majority-owned by Exxon Mobil Corp., retreated as much as 5.9% in Bangkok.  

With the government struggling to find resources to keep the subsidy program going, it may reallocate funds from productive spending to more short-term subsidies and handouts, Paracuelles said. It could also tap unused portions of the existing borrowing decrees because of weak execution, he said.

The profit-sharing deal as also the extension of relief measures to ease the cost-of-living burden during July-September will be submitted to the Cabinet next week.

(Updates with details of sell-off in refinery shares in seventh paragraph.)

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