2 biggest reasons why Thailand's inflation has stayed benign

May inflation pegged to hit 2.5%.

According to DBS, May inflation data is due today and a benign print of 2.5% YoY is expected. Price pressures have been muted over the past few quarters. In level terms, prices in April were only 0.6% higher than in December, implying an annualized inflation rate of just over 1.8%.

DBS noted that the loss of economic growth momentum in 1Q coupled with THB strength are two reasons why inflation has stayed benign despite rising wage pressures. 

Here's more:

With slowing GDP growth and low inflation,the central bank opted to reduce the policy rate forthe firsttime since October by 25bpsto 2.50% atthe previous monetary policy meeting on May 29.

We suspect that the policy rate decision is one off and not the start of an easing cycle as BoT maintains vigilance on the build up of asset prices. For the rest of this year, a mild updrift is likely asthe government steps up on public infrastructure spending, which should lead to some demand-pull inflation.

However, the upward trajectory would not be sufficient for the BoT to tighten monetary policy forthe rest of 2013.