The Inflation rate in the first month of 2011 reflected increases in consumer goods prices MoM and YoY, as expected. It was boosted by higher retail oil prices as well as rising prices for food products. Although KResearch views that inflation rate is unlikely to accelerate much during the next couple of months, a trend of gradual increases in product prices over-month and the possibility of higher inflation pressure, such as a surge in Headline Inflation of above 3.0 percent and Core Inflation of nearly 2.0 percent during 2Q11 will thus cause the cost of living to rise even more.
Since inflation pressures, particularly Core Inflation trend that will likely move to the upper limit of the BOT inflation targeting framework during 3Q11, the BOT may be forced to continue their monetary tightening into 2H11. Due to the BOT's mission to supervise price stability that may continue to 2H11, KASIKORNBANKGROUP increases our forecast on the key policy rate to 3.25 percent by the end of 2011.
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