Thailand offers oil users more relief to tame inflation risk

Thailand will extend a tax cut on the nation's most-used fuel and subsidise electricity bills of some users to shield consumers from higher oil prices amid a forecast that the nation's sticky inflation may stay above the central bank forecast next year.

The cabinet approved extending the excise tax rebate of 5 baht per litre on retail diesel prices for 2 months to Nov 20, according to government spokeswoman Traisuree Taisaranakul. The move will cost the administration about 20 billion baht (S$768.7 million) in lost revenue, she said.

South-east Asia's second-largest economy, battling the highest inflation rate in 14 years, has spent about US$5.5 billion to subsidise diesel and electricity bills. But with power tariffs rising from this month and the Cabinet giving its nod to raise minimum wages by about 5 per cent, there's a risk persistently high inflation can stifle an uneven economic recovery.

"The government may lose revenue from extending the tax cut, but we need to do it to freeze diesel prices," Anucha Burapachaisri, a government spokesman, told a briefing. "If we allow domestic prices to rise in line with global oil prices, it will raise the cost of living, which will hinder the economic recovery."

Headline inflation is likely to stay above Bank of Thailand's target range of 1 per cent to 3 per cent next year due to high energy and food prices that may prompt producers to pass through increased costs, according to Siam Commercial Bank. Retail price index may average 6.1 per cent this year but will ease only to about 3.2 per cent next year, the bank's research group said Tuesday.

Thailand's consumption recovery will face downward pressures from the slow and gradual inflation easing and fading government stimulus, according to Siam Commercial. BLOOMBERG

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