Thailand: Inflation slows to six-month low
October 4, 2011
In September, consumer prices dropped 0.32% over the previous month, which contrasted the 0.43% rise observed in August. The monthly drop reflected lower prices for transport and communications, owing to lower fuel costs. Due to the monthly drop, annual headline inflation declined from 4.3% in August to 4.0% in September, which marked the lowest level since April. The reading was broadly in line with market expectations that had inflation dropping to 3.9%. The core inflation index, which excludes more volatile categories such as fresh food and fuel added 0.10% over the previous month (August: +0.27% month-on-month). Annual core inflation rose from 2.8% in August to 2.9% in September, which now sits a notch below the Central Bank's upper target range of between 0.5% and 3.0%. The Central Bank uses the core inflation rate as a guide to monetary policy, and aims to keep it below 3%. However, monetary authorities are studying the possibility to use headline inflation in future, rather than core inflation, to conduct monetary policy. Meanwhile, the damage from the devastating floods is likely to cause a near-term spike in food prices since large areas of agricultural areas have been hit and transportation lines have been disrupted. Around 10% of the current rice harvest has been reported damaged and local rice traders have estimated that rice prices could rise 20% to 25%, which could add between 0.4 to 0.5 percentage points to headline inflation. The Bank of Thailand expects headline inflation will average 3.9% this year and 3.2% in 2012. However, the Bank is likely to revise its inflation expectations on 28 October.
Author: Ricardo Aceves, Senior Economist