Headline inflation in May fell for the first time since March 2016 to ?0.04% y/y, bringing the average first four months’ CPI to 1.0%. In tandem with a weak headline inflation, core CPI, which excludes prices of energy and raw food, rose at a slower pace by 0.46%y/y in May. Lacklustre inflation was due to weak food prices and poor pricing of power following a still weak domestic demand which is improving modestly but inadequate to fire up inflation.

We expect inflation to remain soft in the coming months although the prices of oil and commodity have been firming. Part of the reason is due to a more favourable Thai baht against the USD outlook, averaging at 34.5 or appreciating 2.8%y/y in May which will contain imported inflation from fuelling up. Also, there is a lack of demand? pull inflationary pressure. We have revised downwards our 2017 inflation projection to 1.2% from previously 2.0%, which is still within the central bank’s target range of 1.0% to 4.0%. We believe Bank of Thailand (BOT) will maintain its current policy rate of 1.50% in 2017 as it needs to support the economic growth which is heavily dependent on the fiscal policy with the public sector bearing a bigger debt burden.

• Headline inflation in May fell for the first time since March 2016. Headline inflation fell to ?0.04% y/y in May from 0.38%y/y in April, bringing the average inflation for the first four months to 1.0%.

• In line with a weak headline inflation, the core CPI that excludes the prices of energy and raw food rose at a slower pace by 0.46%y/y in May from 0.50% in April.

• Lacklustre inflation data arises from weak food prices and poor pricing power. The domestic demand is still weak despite improving modestly. Hence it is unable to fire up inflation.

BOT to stand pat with its policy

• We expect inflation to remain soft in the coming months although the prices of oil and commodity have been firming. Part of the reason is due to a more favourable Thai baht against the USD outlook, which averaged at 34.5 or appreciated 2.8%y/y in May. The favourable baht outlook will contain imported inflation from fuelling the headline inflation. Also, there is lack of demand?pull inflationary pressure.

• We have revised downwards our 2017 inflation projection to 1.2% from previously 2.0%, which is still within the central bank’s target range of 1.0% to 4.0%. We believe Bank of Thailand (BOT) will maintain its current policy rate of 1.50% in 2017 as it needs to support the economic growth which is heavily dependent on the fiscal policy with the public sector bearing a bigger debt burden.

Source: AmInvest Research - 2 Jun 2017