Consumer goods prices, particularly on fresh foods, declined during December, as expected, amid a gradual recovery from the worst flooding in decades. In addition, declines in retail fuel prices in line with the global oil market have also helped ease inflationary pressure, suggesting that the previous period of accentuated inflation has run its course. The Headline Inflation rate for December was only 3.53 percent YoY, dropping from 4.19 percent YoY in November. Core Inflation was 2.66 percent YoY, down from 2.99 percent YoY in November.
Looking ahead, we at KResearch maintain our view that this deceleration in inflation will continue through early 2012, wherein 1Q12 Headline Inflation may average 3.5 percent YoY, relatively low compared to the average of 4.0 percent YoY recorded in last three quarters (April-December) of 2011. This trend is attributed to a stabilization of goods prices after the spikes during the flooding. However, inflation in coming months may continue to be bloated by factors affecting prices to rise over-month, including steep wage increases by the private sector, the government's new energy price structure resulting in price hikes on certain fuels, rising farm produce prices and lofty global oil prices driven most recently by strained relations between Iran and the West.
As for monetary policy, KResearch expects that the BOT will continue to monitor inflationary pressure and global economic risks to establish an appropriate stance. Overall in 2012, we are maintaining our forecast that Headline Inflation will be within 3.5-4.5 percent and Core Inflation will be around 2.6-3.6 percent.
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