Thai headline inflation slows down sharply in June, BoT likely to stay on hold through 2019

Thai headline inflation came in below the central bank’s target band in June. On a year-on-year basis, the consumer price inflation came in at 0.87 percent, falling below the target band of 1-4 percent. This is the lowest reading in four months. Sequentially, the headline inflation fell by 0.36 percent, partly reversing the 0.48 percent gain seen in the prior month. The fall was driven by energy prices, which dropped by 3.76 percent.

In the meantime, the pace of rise in raw food prices eased in the month, coming in at 0.30 percent sequentially after surging in May. Core rate was up 0.05 percent sequentially, easing from May’s 0.10 percent. While the recreation and education category saw prices rise 0.64 percent, this was partly countered by softer price pressures elsewhere, including falling prices in the apparel and footwear as well as medical and personal care categories.

The Commerce Ministry lowered it 2019 CPI forecast to 1 percent from 1.2 percent, citing falling fuel prices and the solid THB. According to an ANZ research report, the BoT is expected to keep its policy rate on hold through 2019, given policymakers’ concerns about the financial stability risks.

“However, the growing divergence between the real policy rate (based off core inflation) and growth in economic activity means the balance of risks is tilted towards a cut, and a further material deterioration in the growth outlook would warrant a reassessment of our forecast”, added ANZ.