Despite several factors that could have driven up consumer prices in October – e.g., the “Kin Jae” festival, lofty retail fuel prices and flooding that has devastated crop harvests – the Headline Consumer Price Index (CPI) for October 2010 did not change much from the previous month, as the impact of flooding on consumer prices was rather limited during the second half of October. As a result, Headline Inflation for October decelerated more than expected for the second consecutive month at 2.8 percent YoY, down from the 3.0 percent pace in September, while Core Inflation for October held static at 1.1 percent YoY.
Although we have seen mild acceleration in inflationary pressure over the past two months, which has helped ease some concern about risks to price stability, KResearch is of the opinion that it will still be necessary to monitor November consumer price movements closely as the impact of extensive flooding will probably spike prices in certain fresh food categories, and several other factors are expected induce higher inflation in 2011, e.g., production costs and global commodity prices that have gradually risen since 2H10, plus wage increases for workers and government employees. As a result, we preliminarily assess that Headline Inflation in 2011 will probably stand at around 2.5-4.0 percent, against an average of about 3.3-3.6 percent in 2010.
In any case, we believe that the Thai authorities will have sufficient means to deal with inflationary pressure next year, wherein they may extend existing cost-of-living relief measures or stabilize energy prices, while the Bank of Thailand could tighten their key policy rate further next year after keeping it unchanged at 1.75 percent during the remainder of 2010 to answer any global risk toward the Thai economy.
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