Thai headline inflation falls further in May, likely to remain in negative territory in months ahead

Thai headline inflation dropped even more in May to a new post-GFC low, driven by the food and housing components. Inflation is expected to stay in negative territory in the months ahead, though the downward pressure on prices are likely to ease gradually as more business activities resume after the lockdown measures have been lifted, noted ANZ in a research report.

On a year-on-year basis, CPI came in at -3.44 percent in May, falling from April’s -2.99 percent. The fall was driven by the fall in raw food and core 1 component. Energy deflation came in at -27.38 percent year-on-year in May, falling further from April’s -29.31 percent.

Core inflation slowed down to 0.01 percent in May from April’s 0.41 percent. The main drag on core inflation was housing prices, which fell 5.61 percent year-on-year after declining 4.56 percent in April. Most other non-food components either saw prices rise at a similar or faster pace in May relative to April. In the meantime, transport deflation eased.

On a sequential basis, headline inflation rose 0.01 percent, aided a recovery in energy prices. The prices of most other major components either stayed flat or recorded small rises. The exception was housing prices that fell 1.12 percent.

With the economy now reopening, downward pressure on prices should gradually ease. Nonetheless, persistent uncertainty surrounding the pandemic and the legacy of job losses will hamper consumer demand and keep price pressures subdued. The strength of the THB is also a headwind to growth and inflation.

“Against this backdrop, policy settings will need to be accommodative. The Bank of Thailand cut its policy rate to a new record low of 0.5 percent last month and the meeting minutes released today signalled a readiness to deploy additional policy tools if needed (though further details on the potential measures were not provided). Fiscal spending is also set to ramp up following the parliament’s approval of the THB1.9trn (11 percent of GDP) stimulus package on Sunday”, added ANZ.