Thailand inflation to edge up to 2.6%

This is despite new policies on food and behaved oil prices.

According to DBS, inflation is expected to reach 2.6% YoY in August. Thus far, headline inflation has proven to be surprisingly benign despite the increase in minimum wages in April.

This has come from a combination of factors including administrative measures on selected food products and the easing off of oil prices in the months of May and June. However, food price pressures bear watching.

Here's more from DBS:

Since the floods from last year, fresh food prices have remained elevated and the food component of CPI has been the biggest contributor to inflation. In particular, the prices of fresh fruits have soared by 24% since the beginning of this year. For now, ample rice stocks should be sufficient keep a lid on overall food prices.

Although not our core view, there is an increasing chance of further monetary easing in the coming months. Growth concerns are starting to mount and this has been reflected in the export growth numbers for July. The upside is that the domestic economy has been resilient and that has been reflected by the sharply above consensus GDP growth of 4.2% YoY in 2Q.

Moreover, private sector credit growth (business and individuals) is already starting to accelerate. In annualized terms, business loans and individual loans are up by 11.5% and 15.5% respectively in the 1H. Comparative, the average overall loan growth over the past 10 years is 8.7%. At this point, we believe it will be premature to cut rates. Further rate movements will have to be dependant on the extent of external slowdown in the coming months.

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