Head line inflation in May 2018 accelerated to 1.49 percent, mainly on the back of domestic energy prices that had risen in line with the uptrend of global crude oil prices to nearly USD80/barrel. If global crude oil prices are within the range of USD70-80/barrel over the remainder of 2018, Thailand's energy prices will continue to rise. However, headline inflation in 2H18 may increase at a slower pace than the May record on account of the high base of comparison in 4Q17 after the excise tax restructuring, gradual increases in domestic oil prices in sync with hiker global crude oil prices and the government's measure to peg the diesel prices at not more than THB30/liter.
Domestic energy prices are expected to remain at high levels through the second half of this year, thus affecting households' purchasing power. Nevertheless, the Thai economy, in continued expansion, may help support household income and make up for the adverse impacts caused by rising goods prices.
Amid a better-than-expected performance of the Thai economy and accelerating inflation due to heightened energy prices, headline inflation will likely return to be within the Bank of Thailand's inflation targeting framework of 1.0-4.0 percent after having been lower than the framework over the past 2-3 years. This could present a difficult issue for any decision making related to the monetary policy in 2H18. KResearch predicts that headline inflation in 2018 will not exceed the upper limit of our projection range of 1.5 percent and will stand at around 1.1 percent.
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