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2 Jul 2008

Thai Economy

June Inflation at 10 year Peak, Core Inflation First Time above BOT Target (Business Brief No.2216)

คะแนนเฉลี่ย
- According to the Ministry of Commerce's report on the Commodity Price Index in June 2008, Headline Inflation rose 8.9 percent over the same period of last year, which was higher than the 7.6 percent in May and 8.5 percent forecast by most analysts. It is also the highest rate ever recorded in almost 10 years, while inflation in June versus May increased 1.2 percent.
- Moreover, Core Inflation in June rose to 3.6 percent over the same period of last year, representing the highest level in almost 10 years since March 1999. It was also the first time that Core Inflation outstripped the Bank of Thailand's inflation target of 0.0-3.5 percent, set in 2000. KASIKORN RESEARCH CENTER (KResearch) views that Core Inflation will likely rise to more than 4.0 percent in August and may approach 4.5-5.0 percent toward the end of the year. This should be an important indicator toward implementation of monetary policy by the Monetary Policy Committee on July 16 and during subsequent meetings.
- Regarding production costs, the Producer Price Index rose 18.6 percent over the same period of last year, which was higher than 15.6 percent in May 2008, also representing a 10-year record high. Looking ahead, the prices of raw materials are on an upward trend.
- The rise in production costs is an important signal pointing to gradual increases in the prices of consumer products. KResearch expects that inflation will surge to 9 percent in July and hit a new double-digit high in August; thereafter, it will likely remain above 9 percent until October. As a result, it is expected that the average inflation for 2008 will stand at 7.4 – 8.0 percent.
In conclusion, KResearch expects that inflation will remain high due to rising production costs, as reflected by the fact that the growth in the Producer Price Index (PPI) has outstripped the inflation rate over the last 10 months. The widening gap between production costs and inflation (as seen in the 10 percent spread between Headline Inflation and the Producer Price Index also indicates that industries will have to shoulder increased costs. Eventually, entrepreneurs will be forced to pass on the costs to consumers. Meanwhile, the accelerating Headline CPI might prompt the BOT to implement additional monetary policy adjustments soon.

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Thai Economy