Thai annual inflation comes with target band in July, BoT likely to hike policy rate in November 2018

Thai headline consumer price inflation came in closer to the consensus expectations. The consumer price inflation came in at 1.46 percent on a year-on-year basis, while it dropped on a sequential basis. The sequential decline of 0.05 percent was mainly because of lower food prices. Food prices dropped 0.33 percent on a sequential basis, the most rapid rate in five months. Recreation and education costs also dropped 0.01 percent sequentially.

Other components saw sequential rises although compared to June, the rate of rise was more moderate in some, noted ANZ in a research report. Tobacco and alcohol prices remained the same after recording a fall in June.

The annual headline inflation has now come in the official target band of 1 percent to 4 percent for the fourth consecutive month. To be sure, headline inflation is still running close to the lower bound of the Bank of Thailand’s target range of 1 percent to 4 percent.

Even so, it has been accompanied by a strong rebound in growth momentum, affirming that Thailand has exited the phase of low growth and inflation. Strengthening real activity is also an important differentiating factor from South Korea where inflation has moderated amid softer growth.

“We continue to believe that the current growth-inflation mix presents a favourable backdrop for gradual normalisation of monetary policy and to rebuild space to meet unforeseen contingencies. Accordingly, we continue to expect the BoT to increase its policy rate by 25bps in November this year”, added ANZ.