Fuelling fears: Thai diesel price hike won’t ignite retail inflation

The Joint Standing Committee on Commerce, Industry and Banking (JSCCIB) stated that a potential increase in domestic diesel prices, which could surpass 30 baht a litre following the termination of the Oil Fuel Fund subsidy scheme on March 31, is unlikely to prompt manufacturers to raise the prices of their goods.

Prime Minister Srettha Thavisin revealed on Tuesday, April 2, that he is awaiting proposals from the Energy Ministry on the regulation of diesel prices. It should be noted that the 1-baht diesel excise tax reduction is set to expire on April 19.

Despite this, Biodiesel B7, a blend containing 7% palm oil-derived methyl ester, was still retailing at 29.94 baht a litre on Wednesday. This aligns with the government’s intention to keep the price below 30 baht a litre, according to media reports referencing prices at PTT petrol stations.

Kriengkrai Thiennukul, chairman of the Federation of Thai Industries and a key member of the committee, suggested that the JSCCIB would not object to a government decision to increase diesel prices by 1-2 baht a litre.

“We understand the Oil Fuel Fund has a huge financial burden after the authorities used it to subsidise the diesel price since September last year.”

As of March 28, the fund had suffered a 98.2 billion baht loss, with 51.1 billion attributed to the oil subsidy, including diesel and gasohol. An additional 47.1 billion was due to the liquefied petroleum gas price subsidy, according to energy officials.

Logistics costs

Kriengkrai also noted that surging diesel prices would raise the operational and logistics costs for manufacturers, which may lead them to consider price hikes for their products and services.

“However, the JSCCIB does not think it is the right time to increase goods prices. We believe manufacturers can cope with the situation.”

Sanan Angubolkul, chairman of the Thai Chamber of Commerce and another member of the committee, supported this view, stating that businesses would not raise consumer product prices as the economy is still on the road to recovery.

The JSCCIB repeated its request for the Bank of Thailand to lower the policy interest rate, highlighting that rates are beginning to decrease in other countries.

“If the central bank cuts the rate, it would reduce financial costs for entrepreneurs.”

Kriengkrai added that the Thai economy needs more time to recover fully.

“A measure to stimulate the economy and an interest rate cut should contribute to economic growth and help businesses and households deal with financial burdens.”

In January, the JSCCIB requested the central bank to reduce the policy rate. However, the Monetary Policy Committee decided to maintain the rate at 2.5%, the highest level in a decade, during its February meeting.

The committee maintained its GDP growth forecast at 2.8-3.3% for this year on Wednesday, with exports projected to rise by 2-3% and inflation anticipated to settle between 0.7 and 1.2%.