Overall consumer goods prices in October 2011 increased 4.19 percent YoY, up slightly over the 4.03 percent pace recorded in September, as rising inflation was partly offset by a decline in fuel costs. However, food and beverage prices continued to rise as expected due to the recent flooding disaster, especially for fresh vegetables (up 15.24 percent MoM), plus eggs and dairy products up 0.69 percent MoM).
It must be conceded that the government's controls on key commodity prices and their planned imports of certain goods – aimed at addressing shortages in the country – may help slow price hikes somewhat. Although consumer goods prices (as surveyed by the Ministry of Commerce) have risen only slightly, there has been an unprecedented increase in consumer spending resulting from soaring demand for necessities during the flood crisis.
KResearch has assessed that consumer goods prices during 4Q11 will remain high, especially for fresh foods in general because such produce has been damaged by flooding. Prices of necessities are rising due to shortages and logistical problems. Given this, the average Headline Inflation rate for 4Q11 may remain above 4.0 percent, hovering around the 4.1 percent rate recorded in 3Q11, while the average Core Inflation rate may stand close to the level seen in 3Q11 at 2.8 percent. This has led us to revise upward the lower limit in our projection for Headline Inflation in 2011 to 3.9 percent, from our previous projection of 3.7 percent, while standing pat with the upper limit in our forecast at 4.0 percent. As for Core Inflation, we are maintaining our earlier projection of 2.3-2.6 percent.
Because it is plausible that consumer goods prices will gradually return to normal around early next year, we at KResearch are not changing our forecast for Headline Inflation in 2012. Hence, we believe it will be perhaps 3.9 percent (on a par with our forecast for 2011). Inflation in 2012 will be driven by such factors as the planned cancellation of measures to relief the high living costs, adjustments to certain fuel prices and wage hikes in both the private and public sectors.
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