Thailand's June CPI indicates tentative fall

Thailand's inflation picked up to a weaker-than-expected pace, with cuts in the oil fund levy offsetting the pass-through of the recent recovery in oil prices to retail pump prices. Food inflation recovered to 0.5% y/y from 0.1% in May, driven by a pickup in fruit and vegetable prices, but plentiful supplies of rice and meat were a continued drag. Core inflation was stable, with a renewed fall in healthcare price inflation offsetting a recovery in prepared food inflation.

Inflation shows tentative signs of bottoming, but risks remain skewed to the downside. Inflation moved higher on a y/y basis for the first time since May 2014, and on a seasonally adjusted basis, prices rose 0.19% m/m, the most since January 2014. Food inflation could continue to pickup in the near-term, with El Niño already showing some signs that it is affecting food production (eg, rice planting delays due to drought). However, demand-side pressures remain weak, and there is also a risk that electricity tariffs could be cut, given that they have yet to fall significantly following the fall in global energy prices. 

"Last month we lowered our 2015 inflation forecast 60bp to -0.4%, while the BoT cut its forecast to -0.5%", says Barclays.