February consumer goods prices surged over January. However, Headline Inflation increased only 2.87 percent YoY due to a high base from 2010 (during the Chinese New Year). However, KResearch estimates that inflationary pressure in Thailand will likely accelerate during 2Q11 because businesses affected by higher manufacturing costs (e.g., on raw materials, intermediate goods, financial costs, wages, etc.) may request the Ministry of Commerce to allow higher product prices after the end of March.
Due to some major risks that may affect Thai businesses during the coming months, proprietors should brace for higher oil prices and drought that could affect farm produce production, as it did in 2010. KResearch's forecasts of 2.9-4.0 percent in Headline Inflation and of 2.0-2.6 percent in Core Inflation are based on a scenario of increases in food and oil prices at a certain degree. However, inflation could surge over 5.0 percent in our worst-case scenario if oil prices remain high for an extended period, and climate change problems become substantial.
Such higher inflationary pressure would not only lead to tighter BOT monetary policy, but also affect the adjustment of domestic wages. KASIKORNBANKGROUP estimates that the Thai key policy rate may increase to 3.25 percent by the end of 2011 if the Thai economic risks remain within the manageable level.
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