Global Inflation Risk Rises as Conflict Looms, Thailand's Consumer Spending Slows
Global geopolitical tensions are driving inflation risks higher, prompting rate hikes by the U.S. Federal Reserve and Bank of Japan, while Thailand grapples with weakening consumer spending despite government stimulus efforts.
Prolonged geopolitical conflict is pushing the world toward higher inflation risk, supporting interest-rate increases by the U.S. Federal Reserve and Bank of Japan, while Thailand prepares additional stimulus as consumer spending weakens.
United States: Inflation risk has risen following escalating Middle East tensions. The Federal Reserve unanimously voted to raise its policy rate by 0.25% to 3.75–4.00% annually at its September 16 meeting. The Fed revised its 2025 and 2026 GDP forecasts upward to 2.3% and 2.4% respectively, but expects inflation to accelerate to 3.7% in 2025 before easing to 2.3% in 2026. The Fed remains concerned about inflation remaining above target amid worsening Middle East tensions while economic growth stays above potential, signaling further rate increases likely by year-end.
Japan: The Bank of Japan raised its policy rate by 0.25% to 1.25% annually on September 18, the highest in 31 years, to ease inflation pressure from higher oil prices and yen weakness. The central bank signaled more increases may follow, citing concerns that inflation could remain above its 2.0% target for an extended period, damaging the broader economy.
China: Economic activity continues to slow, with retail sales expanding just 0.4% year-on-year in August and fixed-asset investment contracting more sharply. Excess supply, intense price competition, and Middle East tensions weigh on business conditions, while the property sector remains depressed with new home sales falling 18.3% in July. Despite strong exports rising 25%, this has failed to support domestic economic momentum.
Thailand: Private consumption is losing momentum from multiple headwinds, while government stimulus budgets may shrink. The Thailand Help Thais Plus program, which bolstered household purchasing power from June through September, has disbursed 138.38 billion baht—79.51 billion from government and 58.87 billion from public co-payment. The government is extending the scheme for two additional months in the fourth quarter, but the separate Thailand Visit Thailand Plus program has been delayed to next year.
Government stimulus has been crucial to household spending, but private consumption momentum is expected to weaken ahead due to falling stimulus: the initial phase budget of over 120 billion baht shrinks to roughly 30 billion baht in phase two. Middle East tensions and high energy prices may lift living costs through pass-through effects to consumers. Wage income weakened 0.25% year-on-year in the second quarter of 2025, and with household debt already elevated, consumption will likely face headwinds going forward.
