Thai CPI inflation accelerates in August, BoT likely to begin policy normalization in November

Thai headline inflation came in above expectations in August. The consumer price inflation accelerated to 1.62 percent on a year-on-year basis. Sequentially, the headline rate came in at 0.26 percent after easing for two straight months. The year-on-year rate is within the Bank of Thailand’s target range of 1 percent to 4 percent for the fifth month. The August level is the highest since September 2014.

The above expected headline rise in August was mainly because of a larger than anticipated rise in food prices. The food component of the CPI rose 0.5 percent sequentially, adding 0.18 percentage points to the 0.26 percent rise in the sequential headline CPI. Part of the rise in food prices is possibly due to an unwinding of the falls seen over the previous two months, stated ANZ in a research report.

The only other marked price rise was in the “Transportation and Communication” segment, which rose 0.3 percent sequentially, though this was expected given the rise in retail gasoline prices in the month. Other components recorded some insignificant changes in prices. This is why core inflation stayed moderate at 0.75 percent year-on-year in August, down from the previous month’s 0.79 percent.

With inflation rising higher and the real economic activity firming, the start of monetary policy normalization is getting closer. BoT Governor Veerathai stated last week that there is no imminent pressure to hike rates, so that rules out a move during the upcoming meeting in September.

“But with CPI inflation likely to rise further at a time when growth continues to recover, we expect the BoT to begin policy normalisation at their November meeting”, added ANZ in a research report.