Thailand’s Inflation Rate Accelerated to a 14-month High

The Asean’s manufacturing Purchasing Manager’s Index (PMI) showed mixed signals in April, where both Vietnam and Indonesia trended higher but manufacturing conditions in Thailand and Malaysia worsened during the month. Vietnam’s PMI rebounded strongly to a three-month high of 52.7 in April, following a slower expansion of 51.6 in March, supported by increases in output and new orders, which boosted employment in the manufacturing sector. As for Indonesia, the PMI improved to 51.6 in April from 50.7 in March, its strongest reading since June 2016, driven by output growth and rise in new orders. This was despite stagnant employment and a fall in exports.

In contrast, the manufacturing PMI in Thailand remained in contraction for the second consecutive month in April, with a reading of 49.5 from 49.1 in March, led by a drop in sales and cut in jobs. In Malaysia, the PMI worsened to its lowest level in six months of 48.6 in April, compared to 49.5 in March, due to sharp deterioration in output and new orders. Even though Malaysia continued to register manufacturing PMI below the 50 threshold, Markit noted that the country’s business sentiment towards the 12-month outlook for output was at the strongest level since October 2013, signalling possible improvement in the months ahead. Nevertheless, moving forward, trade tensions between US and China will continue to pose as a downside risk on existing global value chains in the ASEAN region.

On the regional inflation front, Indonesia’s inflation rose at the same rate in April by 3.4% as the previous month, with slower increase in prices of housing and utilities, clothing, and transport, communication and finance. As inflation remains in Bank Indonesia’s (BI) 2018 inflation target range of 2.5%-4.5%, we believe BI may not rush to raise its current policy rate of 4.25%. Furthermore, the government is also taking measures to control inflation via its plan to issue a regulation which would require all fuel retailers to report fuel price increases at gas stations. However, upward inflationary risk could stem from increase in prices during the upcoming fasting month in May as well as the weaker rupiah, which would increase import costs. Meanwhile, Thailand’s inflation rose for the second consecutive month to a 14-month high of 1.1% yoy in April, from 0.8% yoy in March, settling in the lower-end of Bank of Thailand’s (BOT) inflation target range of 1.0%-4.0%. Higher inflation was due to costlier food and non-alcoholic beverages as well as transport and communication. BOT anticipates inflation to trend higher in 2018 albeit at a gradual pace, as fresh food prices are projected to remain low while the impact from minimum wages in 2018 is also expected to be limited. In its latest monetary policy statement in April, BOT forecasted inflation to average 1.0% for 2018 as a whole.

Source: Affin Hwang Research - 4 May 2018