● In July, consumer prices posted the smallest decline in 4 months (-1.0% YoY; consensus: -1.5%; Jun: -1.6%)

− MoM (0.7%; Jun: 1.6%): growth softened to a two-month low.

− Core inflation (0.4%; Jun: 0.0%): rose to match a four-month high, suggesting improved demand condition amid further relaxation of COVID-19 containment measures on 1st July.

● The ease in deflationary environmentwas broad based, led bysmallerdecline in pricesofnon-core goods (-4.5%; Jul: -5.6%)

− Housing& furnishing (-0.1%; Jun: -1.7%): the drop lessened to smallest in four months as the government relief measures in the form of three-month water bills reduction and payment fee exemption came to an end on 30th June.

− Medical & personal care (1.2%; Jun: 0.2%): surged to over five-year high solely on a low base effect.

● Inflationary pressure increased in most advanced and developing economies

− EA (0.4%; Jun: 0.3%): ticked marginally higher as smaller drop in energy prices offset lower growth in food prices.

− PH (2.7%; Jun: 2.5%): accelerated for two straight months, reaching a 6-month high on higher transport and utility costs.

● 2020 CPI forecast maintained at -1.0 - 0.0% (YTD: -1.1%; 2019: 0.7%)

− The easing deflationary trend is expected to extend to the next few months, supported by gradual increase in oil prices and domestic demand, given further disbursement of the fiscal stimulus in 3Q20.

− Policy-wise, we expect the BoT to keep the policy rate unchanged at 0.50% for the remainder of 2020, as indicated by its recent less-dovish tilt and noting the limited policy space

Source: Kenanga Research - 7 Aug 2020