Thai headline inflation rebounds slightly on energy component in June, but remains negative

Thai headline inflation turned less negative to 1.57 percent year-on-year in June, driven by easing energy deflation. The rebound in headline inflation was mainly due to the energy component, with energy deflation easing sharply from -27.38 percent year-on-year in May to 11.89 percent in June. Raw food deflation also weakened.

Markedly, core inflation turned negative for the first time since the global financial crisis. The main drag was recreation and education prices, which fell 0.29 percent year-on-year, the first negative print since 2010, underlining the pressure from soft tourism.

Sequentially, headline consumer price index rose 1.56 percent, driven by energy prices, which rose 16.78 percent. The housing component, which includes utilities, also registered a marked rise after three straight months of declines. On the contrary, textile, medical and personal care, and recreation prices recorded small falls.

The downward pressure on prices is likely to continue to ease in the midst of growing signs that the economy has bottomed out, noted ANZ in a research report. A contained domestic COVID-19 outbreak has given Thailand scope to begin its fifth phase of reopening at the start of the month, with schools and high-risk entertainment venues resuming operations. In the meantime, consumer confidence data released yesterday indicated the second straight month of rebound.

However, deflation risks will persist as the economic rebound would be slow and halting against a backdrop of weak global demand and long-lasting damage to some services. The strength of the THB is also a headwind to growth and inflation.

“Domestic growth and inflation dynamics call for further policy support, but with the policy rate already at an all-time low of 0.50 percent, there appears to be little appetite for further reductions. The monetary policy committee’s decision to hold the policy rate unchanged at its meeting last month was unanimous, and the focus appears to be on non-rate measures such as expediting debt restructuring and accelerating credit extension”, said ANZ.