Headline Inflation in January 2010 rose 4.1 percent YoY, accelerating over the 3.5 percent in December, thereby being the highest level in 16 months since October 2008. This is primarily due to higher domestic retail food and motor fuel prices in January, plus an adjustment in the five government cost-of-living relief measures. Core Inflation, excluding fresh food and fuel, rose to 0.6 percent YoY, from 0.2 percent in December, returning to be within the BOT inflation targeting framework of 0.5-3.0 percent for the first time in 9 months.
Concerning the inflation trend over the near term, both Headline and Core Inflations are likely to decelerate. Core Inflation may slip below the lower limit of the BOT inflation-targeting framework due to a high base effect from last year when it rose in February 2009 due to the government's adjustment of six cost-of-living relief measures by cancelling the fuel excise tax. These will cause the February 2010 YoY inflation figure to come out lower than January's. However, the drop in inflation may be a short-term phenomenon. A rising commodity price trend appearing with the global economic recovery may result in a higher inflation rate in 2H10, depending on the direction of oil and other commodity prices in the global market, as well as the government's decision on whether to end the five cost-of-living relief measures or not.
KASIKORN RESEARCH CENTER (KResearch) expects that Headline Inflation will be around 3.0-4.0 percent, while Core Inflation may reach around 1.5-2.5 percent, increasing over 2009 when Headline Inflation was (-)0.9 percent and Core Inflation was 0.3 percent.
Although the current high inflation (mainly due to technical factors in inflation calculations and government remedies) is not considered an obstacle to the economic recovery and won't likely pressure the Bank of Thailand to alter their monetary policy rate in the near term, the possibility that oil and commodity prices will rise further may add more pressures on the household sector. Consumer purchasing power may not improve much over last year despite increases in income. This direction leads KResearch to project that private consumption will recover gradually, growing around 1.5-2.6 percent in 2010, improving over the expected drop of 1.2 percent in 2009. Nevertheless, that would still be lower than the 5-year average before the global recession began in 2009 when private consumption was growing around 3.7 percent (between 2004-2008).
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