The decelerating rise in the Headline Consumer Price Index (CPI) in August 2010 to 3.3 percent YoY was expected by most analysts. Meanwhile, the Core Consumer Price Index has remained unchanged at a level of 1.2 percent, which is slightly lower than forecast. This may reflect a deceleration in economic momentum during 2H10.
For the Inflation trend over the remainder of 2010, KResearch forecasts that both the Headline and Core CPI figures will likely remain unchanged in 3Q10 before rising somewhat in 4Q10. Intensified competition, a stronger Baht trend and a domestic economic deceleration in 2H10 may partially relieve some pressure during the upward inflation trend.
In 4Q10, product prices may be boosted by many factors, including the ‘Kin Jae' festival and the economic impacts of flooding. A request by the Ministry of Commerce to maintain price controls on fewer products may also boost Inflation. Although the prices of commodities have been closely supervised by the Ministry, it is possible that manufacturers may gradually pass on their real costs to consumers. In addition, we need to keep an eye on some technical factors for inflation due to a revision in the market basket that the Ministry of Commerce uses to define the CPI.
Inflationary pressure later on may be a key factor that could drive the BOT to normalize their key policy rate. KASIKORNBANKGROUP expects that the BOT may consider increasing their key rate during their meeting in October by 0.25 percent to the level of 2.0 percent. After that, the rate trend will likely be determined by inflation and economic performance, especially if the upcoming indicators continue to decelerate as July's figures that reflected weakening exports and domestic consumption.
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