Relatively steep increases in consumer goods prices in August catapulted Thailand's Headline Inflation to a three-year high of 4.29 percent YoY, and Core Inflation to 2.85 percent YoY, due torising food prices (fresh foods were up 2.57 percent and prepared foods up 0.97 percent over July) that countered a decline in fuel costs.
Looking ahead, KResearch is of the view that the declines in oil prices and public bus fares as part of the new government's policy implemented on August 27 and August 30 should help significantly to slow the Thai inflation rate during September to perhaps 3.5-3.8 percent YoY, while the average Headline Inflation rate in 4Q11 may not increase over what was seen in 3Q11, because the government's initiatives to relieve the high cost of living, e.g., requesting producers to freeze prices, will help curb inflationary pressure until at least the end of 2011.
However, anticipated increases in consumer goods prices from September onward and inflation expectation resulting from the government's economic stimuli, along with volatility foreseen in food and energy prices, will continue to force manufacturers to pass on costs to consumers.
Given this, KResearch has assessed that that Headline Inflation in 2011 will be within a range of 3.8-4.2 percent (most likely 3.9 percent as seen in our base case scenario), while Core Inflation should be within 2.3-2.6 percent (most likely at 2.4 percent in our base case), which should be consistent with the above developments. However, the average inflation rate for 2011 may lean toward our base case, or at the low end of our projection, while it is now less likely that Core Inflation will exceed the BOT's inflation targeting ceiling.
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