Inflation rises on higher food prices
THAILAND’S inflation in May was at 1.15 per cent compared with the same month of last year due to rising prices for fresh food, according to Commerce Ministry reports yesterday.
“The ministry may revise the country’s inflation rate following the rise in prices,” the Trade Policy and Strategy Office under the Commerce Ministry’s director-general Pimchanok Nan Vonkorpon said yesterday. The ministry had earlier forecast that inflation would rise in the country by 1.2 per cent for the whole year. However, it has been running between 0.7 per cent and 1.7 per cent.
However, May’s inflation was lower than the 1.23 per cent rate in April of this year, she said.
HSBC said that though Thailand’s inflation in May was higher than earlier estimates due to higher prices for fresh food, the underlying pressures remained muted with core inflation rising just 0.1 per cent m-o-m, seasonally-adjusted.
Meanwhile, financial stability concerns and weakening GDP growth imply the need for a steady policy rate, though macro-prudential tightening is still likely.
However, HSBC believed that the headline CPI managed to stay within the Bank of Thailand (BOT)’s 1-4 per cent target range for the third consecutive month. That bodes well for the trajectory of headline inflation this year. The faster-than-expected rise in fresh food prices was enough to offset a modest decline in energy prices.
“We expect headline inflation to average 1.0 per cent in 2019, with prices rising faster in the second half compared to the first half of the year,” HSBC research said.
Still, with underlying price pressures remain largely muted and core prices rising just 0.1 per cent month-over-month in seasonally-adjusted terms, the result is a slight improvement from the 0.0 per cent seen over the past seven months, said HSBC.
But there remains little evidence to suggest a sustained rise in core prices for the remainder of the year. HSBC expects the contribution of core prices to headline inflation will decline in the months ahead due to subdued domestic demand. This highlights the need for fiscal policy to spur domestic demand and lift growth amid a subdued external environment, said the report.
Overall inflation remained largely benign and HSBC does not expect it to factor significantly in the BOT’s policy rate decisions in upcoming months.
“We do expect slowing GDP growth and further downside risks to limit the BOT’s ability to raise rates further. Meanwhile, financial stability risks are likely to remain a concern, given rising household debt. This implies further macro-prudential measures ahead, with curbs on auto loans as the likely next step,” HSBC said.
