Thailand's inflation slows to 2.47% in April
This was lowest inflation has hit since November 2009 on the back of a steeper moderation in food prices, subsidies and favorable base effects.
Here's from OSK DMG:
After rising 3.45% in Mar, headline inflation slowed sharply to 2.47% yoy in Apr on the back of a steeper moderation in food prices, subsidies and favorable base effects. This was the lowest inflation has hit since Nov 2009 when it eased below 2.0%. Core inflation also slowed, rising 2.13% yoy from 2.77% yoy in Mar. Food prices rose by just 4.5% yoy in Apr as compared to 7.1% in Mar, while non-food cost was unchanged at 1.2% in Apr from Mar. Transport cost - the second largest component in the CPI basket - rose marginally by 0.7% yoy in Apr from 0.6% in Mar on higher oil costs.
Despite easing headline inflation in Apr, we do not expect this trend to continue for the rest of the year as inflationary pressures could rise as the massive government spending and rebuilding program gets underway. Even the use of subsidies would only partially offset this inflation build-up. Moreover, higher global oil prices would also add to inflation pressures as would the introduction of the minimum wage. We continue to expect inflation to average around 4.0% for 2012, slightly above the top end of the government’s forecast range of 3.3-3.8%.
Given the better-than-expected inflation data in Apr, there would have been increased pressure on the Bank of Thailand to cut its policy rate today. Thankfully, the BoT did not buckle under pressure from the government but instead held its ground to keep policy rate steady at 3.0%. The central bank was upbeat about the domestic economy, highlighting the faster recovery of manufacturing, the uptick in consumer and business sentiments, brighter export prospects and continued government support via stimulus measures and accommodative monetary policy. In addition, the BoT remain sanguine about inflation, despite the likely pickup in domestic demand, higher oil prices and implementation of the minimum wage policy.
We do not expect any moves to cut the policy rate unless domestic growth falters or the global environment deteriorates significantly. Nor do we expect any rate hikes this year to anchor inflationary expectations as the central bank would want to maintain an environment conducive to the recovery. We think the policy rate at 3.0% remains supportive of the nascent domestic recovery (which the government pegged to grow by 5-6% vs. our forecast of 5.2% this year) while at the same time, appropriate for keeping inflation in check. For now, we expect no further moves and the policy rate to be held steady at 3.00% for the rest of the year.
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