Thai inflation falls below BoT’s target range in November, BoT likely to hike rate in December

Thai consumer price inflation for the month of November came in below market projections. On a year on basis, the Thai headline inflation came in at 0.94 percent. Sequentially, the consumer price inflation fell 0.22 percent. Today’s print was also below the lower end of the Bank of Thailand’s target rate for the first time since March 2018.

On a sequential basis, non-food prices fell 0.56 percent, driving the weakness in the headline figure. Transportation costs recorded the sharpest decline of 1.41 percent sequentially. Other components were either the same or rose just marginally. Food prices, in aggregate, rose 0.35 percent sequentially in spite of softness in the prices of milk and eggs. On the contrary, prices of clothing and footwear, recreation and medical care, core inflation came in flat sequentially.

The data is at odds with the activity indicators, several of which re-accelerated in October, noted ANZ in a research report. The November manufacturing PMI, which was released earlier today, rose to 49.8 in October; however, it remains below the neutral rate of 50.

The weak print to inflation is not expected to deter the Bank of Thailand from raising its policy rate by 25 basis points in December. According to ANZ, the monetary policy is expected to be guided in the near term by the need to minimise the risk of financial instability and rebuild policy space.

“Our assessment is that three sources of financial instability, including: (1) shift in household savings from bank deposits into mutual funds; (2) strong mortgage related lending; and (3) rising carry-trade type investment activities of cooperatives are being monitored by the BoT”, added ANZ.