Thai headline inflation remains weak in September, BoT likely to keep monetary stance steady this year

Thai headline CPI inflation came in consistent with projection in September. The country’s consumer prices rose 0.38 percent year-on-year in the month, whereas core inflation dropped marginally. It decelerated to 0.75 percent in September, as compared with 0.79 percent year-on-year in August. In the last few months, agricultural price rise has been gaining momentum. But the monthly average global prices of oil dropped in the month exerting more dampener on the already subdued inflation series.

Demand-pull inflationary pressures continue to be weak. Private consumption growth has been softening. The brief stimulus in consumer spending from new product launches and promotional offers would possibly wane in the months ahead, noted ANZ in a research report. Moreover, the increase in rural incomes is limited by subdued agricultural output.

Meanwhile, private investment prospect is not rebounding. Year-to-date private investment rose 0.8 percent year-on-year as of August. In the last two months, private investment shrank even as public spending was ramped up, said ANZ.

“We recently lowered our average inflation forecasts to 0.3 percent y/y in 2016 and 1.8 percent in 2017 (from 0.6 percent and 2.0 percent respectively)”, added ANZ.

Subdued domestic demand is a key drag on the economic growth that might keep inflation weak. Even with inflation averaging below the Bank of Thailand’s 1 percent to 4 percent target range in 2016, the central bank is expected to refrain from adjusting its policy rates through 2016 and concentrate instead on the Thai baht’s relative strength, according to ANZ.