Both the headline and core inflation continued to cool for the fourth straight month. Headline consumer price inflation rose at a slower pace by 0.4% y/y in February, the lowest reading since August 2017. Meanwhile, the core consumer inflation which excludes raw food and energy rose 0.63% y/y in February, chalking up the highest reading since January 2017.

On the whole, inflation is still soft inflation, suggesting there is still weakness in consumption growth. For 2018, we project inflation to pick up moderately to around 1.2% – 1.4% as we envisage some slack to still continue despite the economic activity continuing to improve, especially in labour income. Thus, we expect the BoT to hold the current 1.50% policy rate until 1H2018 with a 20% chance for a 25 basis point (bps) hike in 2H2018 if demand-pull pressure kicks in with wages growing on a broad base.

• Both the headline and core inflation continued to cool for the fourth straight month. Headline consumer price inflation rose at a slower pace by 0.4% y/y in February from 0.7% y/y in January which is below the Bank of Thailand’s (BoT) target of 1% – 4% and our projection of 1.0%.

• January’s headline inflation is the lowest reading since August 2017 due to non-food prices which rose at a slower pace by 0.7% y/y from 1.0% y/y in January while the food prices fell -0.2% y/y from +0.1% y/y in January.

• Meanwhile, core consumer inflation which excludes raw food and energy edged up 0.63% y/y in February from 0.58% y/y in January. It turned out to be the highest reading since January 2017.

• On the whole, inflation is still soft inflation, suggesting there is still weakness in consumption growth. For 2018, we project inflation to pick up moderately to around 1.2% – 1.4% as we envisage some slack to still continue despite the economic activity continuing to improve. Hence we believe the rise in labour income may not be across all sectors.

• Thus, there is a mixed view on the direction of the current 1.50% policy rate that has been left unchanged since April 2015. We feel the current policy rate is poised to stay in 1H2018 with a 20% probability for a 25 basis point (bps) hike in 2H2018 only if we start to witness demand-pull pressure kicking in with wages growing on a broad base.

Source: AmInvest Research - 5 Mar 2018