● Deflation eased further to the smallest in ten months in December (-0.3% YoY; consensus: -0.4%; Nov: -0.4%)

- MoM (0.1%; Nov: 0.0%): rose marginally to its highest since August.

- Core inflation (0.2%; Nov: 0.2%): increased at the same pace for the third straight month.

- Annual (-0.8%; 2019: 0.7%): first deflation since 2015, coming in at the lower-end of our forecast range (-1.0 – 0.0%).

● The uptrend was driven by a softer decline in prices of non-core goods (-1.5%; Nov: -2.0%)

- Transport & communication (-3.1%; Nov: -4.2%): smallest deflation in ten months in line with the rise in global oil price (USD50.22/barrel; Nov: USD42.69/barrel) on the back of OPEC+ decision to raise oil production only by 500k bpd, as opposed to 2m bpd, in January.

- Food & non-alcoholic beverages (1.4%; Nov: 1.7%): the above factor masked the lower prices of food, specifically fresh vegetables (12.9%; Oct: 17.3%).

● Inflationary pressure picked up slightly in the developing economies

- ID (1.7%; Nov: 1.6%): increased to a six-month high on a surge in food prices, particularly spices, chicken eggs and chicken meat.

- PH (3.5%; Nov: 3.3%): highest inflation in 22 months amid increased demand due to the Christmas and new year festivities.

● 2021 CPI is forecasted to rise within a range of 0.7 – 1.3% (BoT: 1.0%; 2020: -0.8%)

- Extended fiscal support, increase in energy prices and a low base effect are expected to contribute to a higher inflation this year. However, the rise would be slowed slightly by the COVID-19 resurgence, which has led to a reimplementation of curbing measures in affected areas including Bangkok.

- The BoT is expected to stand pat on policy rate (0.5%) in February, in line with its goal of preserving the limited policy space. However, we are cognisant of the possibility of a rate cut, which is highly contingent on the near term development surrounding the current outbreak and the stringency of restriction measures being imposed.

Source: Kenanga Research - 6 Jan 2021