Manufacturing costs are now on the rise due to rising energy and raw material prices as well as the 39.5-percent minimum wage increase nationwide on April 1, 2012. Unfavorable weather conditions will be another factor that should not be overlooked as they might push up both production costs and consumer prices in 2Q12, especially through fresh food prices.
Even though production costs and consumer prices may move up over-month during 2Q12, push-through effects on over-year inflation may be limited, with a high comparative base from last year. KResearch forecasts that inflation in 2Q12 may ease somewhat from the 1Q12 average of 3.39 percent; however, this rather benign inflation may be short-lived. Inflationary pressure may be rekindled in 2H12, which would then prompt the Bank of Thailand to give it priority in their policy maneuvering.
Over 2012, we at KResearch are maintaining our projections on headline and core inflation at 3.9 percent and 3.0 percent, respectively. The recovery from last year's flooding may ignite demand-pull inflation, wherein cost-push pressure may also rise, led by two variables, i.e., wage hikes and rising fuel prices that may incrementally have a push-through effect on consumer prices over the remainder of 2012.
Our 2012 projection for Headline Inflation at 3.9 percent takes into account wage increases, causing about a 0.6-0.7 percent upturn in the figure, based on an assumption that the average Dubai crude price would be USD118/bbl. Should oil market remain tight for an extended period and average Dubai crude exceeds USD130/bbl., headline and core Inflation may surge beyond the upper range of our 2012 inflation projection at 4.5 and 3.6 percent, respectively.
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