Thailand’s headline and core inflation rose at a slower pace in the month of December by 0.8% y/y and 0.6% y/y respectively. The diminishing impact of oil prices and lingering weakness in consumption growth are said to be the contributing factors. Hence, the full-year average headline inflation of 0.7% fell short of the central bank’s target of 1% – 4% and ours of 1.0%.

For 2018, we expect inflation to pick up moderately to around 1.2% – 1.4% though the overall economic activity is gaining strength due to some slack in breadth with labour income yet to increase across all the sectors. Hence, we foresee a strong possibility for the central bank to maintain its policy rate at 1.50% through 2018 with a low probability of around 20% for a rate hike by 25 basis points (bps) sometime in 2H2018. We expect no changes to the current monetary policy during its next review which is on February 14.

• Both the headline and core inflation rose at a slower pace in the month of December. Headline consumer price inflation slowed to 0.8% y/y in December from 1.0% in November, bringing the full year of 2017 to average 0.7%y/y which is below the central bank’s target of 1% – 4% and ours of 1.0%. The lower inflation was due to the diminished impact of oil prices and the high base effect.

• Meanwhile, core rate continued to be subdued at 0.6% y/y in December. It suggests the lingering weakness in consumption growth.

• For 2018, we expect inflation to pick up moderately to around 1.2% – 1.4%. Even if the overall economic activity is gaining strength, the rebound in domestic demand will be gradual. There is still some slack in breadth as the stronger economic activity is yet to raise labour income across all the sectors.

• Thus, there is a strong possibility for the central bank to maintain its policy rate at 1.50% through 2018 with a low probability of around 20% for a rate hike by 25 basis points (bps) sometime in 2H2018. The central bank has left its policy interest rate unchanged at 1.50% since April 2015 which is just 25bps above the record low. We expect the central bank to maintain the current monetary policy during its next review which is on February 14.

Source: AmInvest Research - 4 Jan 2018