Kittirat Na Ranong, deputy prime minister in charge of economic matters, played down the significance of any rise in inflation to above the Commerce Ministry's target of 3.2 to 3.7 percent.
"If people have more income while inflation is a little higher, it's acceptable," he told reporters.
Kittirat is also Commerce Minister and his ministry compiles the official inflation data in Thailand.
The state planning agency, which handles GDP data, has forecast economic growth of 3.5-4.5 percent for 2011 and 4.0 to 5.0 percent for 2012. It could revise those figures on Monday.
Prime Minister Yingluck Shinawatra has promised a big rise in the minimum wage and ministers have stressed the need to push up incomes. Her Puea Thai Party campaigned on a host of populist polices and large infrastructure spending, all of which could fuel inflation. .
Annual headline inflation was flat at 4.08 percent in July, helped by price controls and subsidies brought in by the previous government, which will be probably be extended.
The core inflation rate, which excludes energy and fresh food prices, inched up to 2.59 percent in July from 2.55 percent in June, moving towards the top end of the central bank's target range of 0.5-3.0 percent, which guides monetary policy.
The Bank of Thailand has warned that core inflation could go above the top of the range at some point this year and has said it would monitor the policies of the new government closely.
Kittirat also confirmed on Wednesday that the government would push ahead with a huge increase in the price paid to farmers for their rice, which will support rural incomes but also add to inflationary pressure.
FRICTION WITH THE BANK
The central bank has forecast headline inflation of 3.9 percent for this year and core inflation of 2.4 percent, but those forecasts do not fully take into account the new government's policies.
Yingluck is due to present her programme to parliament next week, probably on Aug. 23 or 24.
The Bank of Thailand has already raised interest rates eight times over the past year to 3.25 percent from a record low of 1.25 percent to tackle inflation. Most economists expect it to raise rates again at its policy meeting on Aug. 24.
However, the government, while acknowledging the independence of the central bank, is putting pressure on it to ease back on its tightening.
On Monday, Finance Minister Thirachai Phuvanatnaranubala said his ministry would look at the central bank's inflation target to see whether it was causing problems for the economy.
The implication seems to be that if the central bank pushed the top end of the target a little higher, it would not have to tighten as much as if it had to cap core inflation at 3 percent.
The range is generally reviewed each year. It is proposed by the central bank but has to be approved by cabinet.
Central bank Governor Prasarn Trairatvorakul said on Wednesday he had discussed the matter with Thirachai on the phone along with other financial policies.
Prasarn said the current inflation target of 0.5-3.0 percent was still good. Asked whether the target was impeding economic growth and domestic comsumption, he said: "No."
"The target conforms with the law as it was approved by cabinet late last year. It has been implemented well and we are among those in the region that tackle inflation well," he added.
Copyright Reuters, 2011