Krungthai COMPASS Warns Oil Prices, El Niño to Push Year-End Inflation Above 2% Target

Krungthai COMPASS research center forecasts Thailand's inflation for the remainder of 2026 will trend above the 2% midpoint inflation target and is increasingly driven by domestic demand pressures, with risks of further increases from El Niño effects.

General inflation in August 2026 came in at 2.53% year-on-year, up sharply from 1.95% the previous month and exceeding analyst expectations of 2.37%. Three main factors drove the increase: energy prices, which account for 41.5% of general inflation (up 1.05 percentage points), core inflation reflecting domestic demand at 39.9% (up 1.01 percentage points) with processed food prices rising for the seventh consecutive month, and fresh food prices rising 0.47 percentage points due to volatile weather affecting production. If El Niño impacts prove severe later this year, prices in these categories could rise further.

Energy risks remain a concern as Middle East tensions continue to be volatile, with Dubai crude oil prices now above 100 US dollars per barrel, up from an average of 79.7 dollars the previous month, likely to increase energy-related price pressures again. Businesses also report ongoing cost pressures being passed through supply chains and damaging confidence, with the Business Sentiment Index remaining below 50 for the ninth consecutive month in August, driven by manufacturing cost concerns and pessimistic outlooks on costs over the next three months. Looking ahead, inflation pressures from energy, core demand, and fresh food categories must be monitored closely, as non-energy factors now play a larger role and El Niño supply-side risks in the coming months could intensify inflation further. Prices for items sensitive to production and transport costs such as electrical appliances, furniture, and laundry equipment are also accelerating, reflecting rising energy cost pass-through.