Thai inflation continues to accelerate in January, subdued domestic activity to cap price rises in 2017

Thai headline inflation continued to accelerate in January 2017 with the help of rise in food and oil prices. Inflation rose to 1.55 percent year-on-year, coming in slightly higher than consensus expectations of 1.5 percent. In December, the CPI inflation had come in at 1.13 percent. Supply side forces resulted in a rise in food and oil prices. In the meantime, core inflation was up slightly to 0.75 percent year-on-year.

Increases in global oil prices might possibly keep headline inflation on an upward trend; however, the continuous weakness in domestic demand is expected to cap price gains this year, noted ANZ in a research report.

The recent figures on manufacturing activity might probably provide an offset to slowing growth in private consumption. Seasonally adjusted, the slight rebound in manufacturing in the fourth quarter of 2016 is consistent with the nascent rebound in regional exports. Private consumption contributes 51 percent to the GDP growth, but manufacturing production has been of the favoured indicators for economic growth.

Average inflation is still likely to accelerate to 1.6 percent in 2017, according to ANZ. If oil prices continue to strengthen throughout 2017, average headline gains are likely to be around the lower half of the central bank’s 1 percent to 4 percent target range. The continuous softness in private consumption and investment would possibly be a drag on consumer price gains.

Credit growth slowed for the third consecutive month in December, coming in at 3.2 percent year-on-year. While exports are likely to rebound this year, the Bank of Thailand is likely to stay supportive of growth and maintain its policy rate at 1.5 percent through 2017, added ANZ.