Thailand May CPI slows to 3-month low on energy drop; food, transport lead y/y rise

06, Jun. 2019

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BANGKOK, NNA - The year-on-year rise in inflation in Thailand decelerated to a three-month low of 1.15 percent in May amid lower fuel costs, but was firmer than expected in light of tighter food supplies and the recent public transport fare hike.

The government is set to revise up its inflation target for 2019 next month as the cost of foodstuffs is expected to increase more in the second half of the year compared to the low prices resulting from a long rainy season a year earlier.

The Commerce Ministry released its monthly Consumer Price Index report on Tuesday.

Key points:

―― Thailand’s consumer price index slowed to 1.15 percent y/y in May from 1.23 percent in April, marking the lowest increase since the 0.73 percent gain in February but slightly higher than the median economist forecast of 1.0 percent. CPI rose 0.92 percent y/y for the year to date.

―― The May CPI increase was led by higher food prices, up 2.83 percent y/y vs. 2.22 percent in April and a recent low of 0.26 percent in October, as prolonged high temperatures resulted in lower crop yields. The government raised public transport fees in late April, pushing up the CPI transportation component by 5.63 percent from a year earlier.

―― The higher food and transport costs were offset by lower fuel prices, which posted the first y/y drop in three months in May, down 1.20 percent after a 2.72 percent rise in April. Overall energy prices dipped 0.49 percent after rising 2.33 percent in the previous month.

―― Core inflation, excluding volatile food and energy items, decelerated to 0.54 percent in May after a 0.61 percent gain in April. It was lower than the median economist forecast for a 0.60 percent rise.

―― On a month-on-month basis, the seasonally adjusted headline inflation rate rose 0.48 percent in May after rising 0.44 percent the previous month.

Takeaway:

―― The director-general of the Commerce Ministry’s Trade Policy and Strategy Office, Pimchanok Vonkorpon, told news media that the government will consider revising up its target for 2019 inflation next month, from the current goal of 1.2 percent. The base-year effect of low food prices in the second half of 2018 caused by a prolonged rainy season is likely to push up food prices further later this year, she explained.

―― The Bank of Thailand will review its neutral monetary policy stance at its next meeting on June 26. It has left its key interest rate unchanged at 1.75 percent after tightening by 25 basis points in December 2018, which was the first hike since 2011. Economists at TMB Analytics expect no policy change throughout 2019, with both growth and inflation slowing.

―― Thailand’s GDP growth decelerated to a four-year low of 2.8 percent year on year in the January-March quarter from 3.6 percent in the final quarter of 2018, prompting the government to lower its growth forecast for this year.

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