Thailand's Headline Inflation in May 2012 was at 2.53 percent, close to what was seen last month. A decrease in domestic oil prices in line with the global market has helped reduce pressure on production and transportation costs as well as offsetting the impact of higher labor costs, after the minimum wage hike put into effect in April. Thus, such costs transferred to consumer goods have accelerated only slightly.
With the possibility of softer inflation than expected during 2Q12 – 3Q12, KResearch reduces our forecast for 2012 Headline Inflation to 3.5 percent, and 2.6 percent for Core Inflation.
However, KResearch views that Thai inflation should rise in 2H12. The average Headline Inflation should surge over 3.5-4.0 percent in the final two quarters of 2012 due to a low base YoY, coupled with the gradual expiry of measures to ameliorate inflation and a high cost of living. Thus, businesses facing pent-up costs (e.g., from rising wages and/or raw material costs) may gradually seek price increases after their Ministry of Commerce price pegs end.
However, we should monitor government guidelines on supervision of product prices that may depend on many factors, particularly oil prices globally. If the Eurozone crisis does not worsen, sanctions against Iran that will become effective in July may have a psychological impact on oil prices globally, thus affecting retail energy prices domestically, as well as Ft rate adjustments later this year. Also, government measures to reduce prices should partially help lessen inflationary pressure during the yearend.
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