Thailand’s headline CPI remains negative in January over lower oil prices, likely to be negative in Q1 2016

Thailand's inflation continues to be in the negative territory for the 13th continuous month due to lower oil prices. The country's headline CPI for January 2016 dropped 0.53%, whereas the core inflation continued to be low at 0.59% y/y. Energy prices in Thailand fell 10.5% in January and continued to be the largest drag on the headline rate in spite of a low year-earlier base. Food prices continued to be manageable as a late harvest increased supply in January. Throughout 2015, CPI inflation was negative, and is expected to rise just slightly in 2016.

"We expect inflation to remain negative in Q1 16 and only move into the 1.5-4.5% inflation target band by end of 2016. Inflation averaged -0.9% in 2015, and as a result of the recent sharp fall in oil prices, we forecast 2016 inflation at 1.0%, with risks still biased to the downside", says Barclays.

The Bank of Thailand, in its latest monetary policy report, had trimmed its growth and inflation outlook for 2015 and 2016. It projects inflation to be 0.8% in 2016. The central bank is likely to maintain its monetary conditions accommodative against the backdrop of a moderate rebound in growth and continued low inflation. However, the central bank governor Veerathai has excluded further lowering of rates that implies that rebound of growth is dependent on fiscal policy.

"We believe the BoT is likely to keep rates unchanged through 2016, with a bias for a weaker exchange rate. If the THB appreciates materially, we do not rule out the possibility of rate cuts aimed at weakening the baht", says Barclays.