Headline Inflation rose to 3.0 percent YoY, as expected, and Core Inflation soared, beyond expectation, to 1.4 percent in December 2010. This rising inflation may indicate that manufacturers have begun to pass on higher production costs to consumers, as reflected by higher prices of some consumer goods.
KASIKORN RESEARCH CENTER (KResearch) forecasts that further gradual increases in prices over-month may be seen, especially if costs of production and global oil prices continue upward in the coming months. Close attention should be paid to the government's cost of living softening measures and energy subsidies after February 2011.
In our base case scenario, KResearch forecasts that Headline Inflation in 1H11 may remain stable, or edge higher than 2.8 percent YoY, as seen in 4Q10. Core Inflation may move upward close to 2.0 percent by mid-2011. Both Headline and Core Inflation may rise further in 2H11. We at KResearch, therefore, are maintaining our 2011 inflation projections at 2.5-4.0 percent for Headline Inflation, and 1.8-2.6 percent for Core Inflation over the year.
The upward trend of inflation may continue over the next several months, so this has prompted KASIKORNBANKGROUP to view that the Bank of Thailand (BOT) will have to remain vigilant toward price stability. The Monetary Policy Committee (MPC) of the Bank of Thailand thus may raise their key policy rate at their first meeting of 2011 slated for January 12th by another 25 basis points to 2.25 percent. We also expect the upward interest rate trend to continue at least throughout 1H11.
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