Thailand's headline inflation to shoot up in 2H12

Food prices and housing costs forced inflation up with respective 4.7% and 3.4% elevation.

According to OSK-DMG, headline inflation again crept a tad higher, rising 2.56% yoy in Jun from 2.53% in May. This was better than what market and we were expecting (i.e. 2.60% and 2.63% respectively). Driving inflation higher was higher cost of housing (the third largest component in the basket) and still elevated food prices (largest component), which rose by 3.4% and 4.7% yoy and respectively in Jun vs. 1.8% and 5.2% in May.

Here's more from OSK-DMG:

On the flip-side, transport cost (2 largest component) contracted 0.5% yoy in Jun vs. 0.1% in May as a result of lower fuel prices, helping to mitigate the higher transport and food costs. Core inflation stayed below 2.0% for the second consecutive month, rising by 1.92% yoy in Jun vs. 1.95% in May.

Headline inflation did not accelerate as fast as we thought it would, helped by lower oil prices and fuel subsidies on diesel provided by the government. As a result, 2Q headline inflation rose by just 2.5% yoy vs. our projection of 4.1% with 1H headline inflation averaging 3.0% only. Nevertheless, we expect inflation to reaccelerate in 2H on the back of the of both demand-pull and cost-push factors, namely massive government spending and rebuilding program, and pass-through of the minimum wage policy and discontinuation of diesel subsidies.

Inflation is likely to average 4.3% yoy in 2H as such. All of these suggest that inflation is now likely to average 3.6% in 2012 as compared to our earlier projection of 4.0% (the government’s forecast for 2012 is 3.3-3.8%). With the economy likely to expand by 6.0% in 2012 and inflation expected nearer the top end of the government’s forecast, we expect the central bank to hold its policy rate steady at 3.00% at its 25 Jul policy meeting to balance the risks to growth and inflation.

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