Thailand's June core inflation seen to climb on rise in consumption

Thailand’s June core inflation is expected to climb higher, largely driven by improvement in consumption and recovery in global crude oil prices. The pace of recovery in private sector demand will determine how long it takes for GDP growth to return to the four percent territory.

The core consumer price index is expected to have ticked up to 0.8 percent y/y in June, which shall be the highest since Nov, 2015. While headline CPI tends to be distorted by changes in oil prices, core inflation is driven more by changes in the underlying demand. Hence, even if the upward move in core inflation has been gradual, it does seem that domestic demand has continued to recover, DBS reported.

Further, the gross domestic product is also expected to register slightly higher growth in the second half of 2016. While headline CPI tends to be distorted by changes in oil prices, core inflation is driven more by changes in the underlying demand. Hence, even if the upward move in core inflation has been gradual, it does seem that domestic demand has continued to recover.

"At this juncture, we still pencil full-year GDP growth at 3.4 percent," DBS commented in its recent research note.

Meanwhile, the pace of recovery in private sector demand will determine how long it takes for the GDP growth to return to the 4 percent territory. Core inflation will continue to provide some cues about the strength of underlying demand. Once core inflation returns to the 1.5-2 percent range, it would be more convincing that domestic demand has returned to normalcy.