● Headline inflation extended its uptrend, registering at an eight-month high in January (1.1% YoY; consensus: 1.0%; Dec: 0.9%)

- Came in within the Bank of Thailand’s (BoT) target range of 1.0-3.0% for the first time in six months.

- MoM: 0.2% (Dec: 0.0%).

- Core inflation: remained at amongst the lowest in 29 months, indicating subdued demand (0.5%; Dec: 0.5%).

● Higher CPI growth led by a spike in prices of non-core goods (2.6%; Dec: 1.9%)

- Transport & communication (1.3%; Dec: 0.4%): rose to a 14-month high on a low base effect in motor fuel prices.

- Food & non-alcoholic beverages (1.8%; Dec: 1.7%): sustained an uptrend for two successive months due to the drought conditions, which is described as the worse in four decades and expected to last until June.

● Increased inflationary pressure within the advanced and developing regions

- Euro area (1.4%; Dec: 1.3%): highest gain in nine months underpinned by a jump in the volatile prices of energy, food, alcohol and tobacco.

- PH (2.9%; Dec: 2.5%): surged to an eight-month high on rising food prices due to supply disruption and crop damage resulting from recent typhoon and Taal volcano eruption.

● 2020 CPI forecasted to register between 0.6-0.8% (2019: 0.7%), below the BoT’s target range

- Inflationary pressure to remain benign as demand conditions and sentiments are increasingly weighed by the coronavirus outbreak and prolonged delays in the disbursement of the 2020 budget. These would outweigh upward pressure on food prices arising from the drought.

- With depressed growth outlook and possibly slow containment of the coronavirus, we view that the BoT may decide to have another round of 25 bps rate cut in the immediate term, after cutting the policy rate to a fresh record-low of 1.00% two days ago.

Source: Kenanga Research - 7 Feb 2020