OVERVIEW

● Thai headline inflation moderated to 0.3% YoY in January (Dec: 0.4%), which is in line with consensus. On a MoM basis, the index was unchanged (Sep: 0.0%). The CPI growth has been on a downtrend since it peaked in August 2018 (1.6%). Meanwhile, the core inflation maintained at 0.7% YoY for three consecutive months.

● The month’s CPI growth was underpinned by rising food & non-alcoholic beverage index which grew by 1.3% YoY (Dec: 0.9%) a 24-month record high. On MoM, the food index rebounded by 0.3% after a sharp fall in December (-0.4%). Similarly, medical & personal care index increased by 0.7% YoY (Dec: 0.6%). Overall, the inflation was greatly muted by the sharp decline in the index of transportation & communication which fell by 1.9% (Dec: -0.6%) as global oil price continued to ease. Brent crude oil price eased to average USD59.04 per barrel in January 2019 (Jan 2018: USD69.08 per barrel).

● Meanwhile, moderating inflation in the advanced and regional economies was observed. European Union (EU) inflation slowed to 1.4% YoY (Dec: 1.6%), dragged down by lower energy and fuel prices, which partly reflecting weakening economic growth. In Asia, inflation in South Korea and Indonesia moderating for three straight months to 0.8% and 2.8% YoY respectively (Dec: 1.3% and 3.1% respectively) due to the sharp decline in oil prices

● The latest CPI trend further undershoots Bank of Thailand’s (BoT) target range of 1.0-4.0%. We expect the 2019 CPI growth to be in the range of 0.5-1.0% given that oil prices have been weaker while the prospect of slower global growth pointing to a moderation in prices of goods. Hence, the probability for the BoT to raise its interest rate would be lower as the monetary policy stance leans more towards stable price trend in 2019. With the US Fed taking a “patient” stance in its tightening cycle, we would not be surprised if BoT would take a similar stance. The central bank has raised its policy interest rate by 25 basis points to 1.75% in December, which is the first tightening since 2011.

Source: Kenanga Research - 4 Feb 2019