Thai headline inflation eases in January, BoT unlikely to adjust policy rate through 2018

Thai headline and core inflation was below expectations in January again. The consumer price index dropped to 0.68 percent year-on-year from December’s 0.78 percent. Moderation in food prices, along with the lower than expected increase in transport costs, were mainly that led to the subdued headline figure.

Food prices dropped sequentially, countering rises in prices of transport, apparel and tobacco. In all, the headline inflation rose just 0.07 percent sequentially. Meanwhile, core rate weakened to 0.58 percent year-on-year, underpinning the view that domestic demand has not increased sufficiently to stimulate the pricing power of the corporate sector.

The weakening in both private consumption and investment indicators implies that this is expected to remain the case until the proposed rise in minimum wages begins to have an effect, stated ANZ in a research report.

The THB strength is also suppressing inflation, the effect of the more than 20 percent year-on-year rise in Brent oil prices has been minimal. The rate of increase in local currency denominated import prices has been milder than in U.S. dollar denominated prices.

“We see no reason for the BoT to adjust its policy rate through 2018. At 1.50 percent, the interest rate is sufficiently supportive of domestic demand”, added ANZ.

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