Price pressures loom in Thailand

Government measures will be needed to help reduce the impact.

DBS Group Research noted:

Headline inflation (due today) is expected to reach 3.6% YoY in December, rebounding from 2.7% in the preceding month. For 2013, inflation is projected to average 3.6%, up from 3% in 2012 as base effects turn unfavorable.

Fundamentally, both cost-push and demand-pull factors are likely to become more apparent in the coming quarters. Notably, the rollout of higher minimum wages across the remaining 70 provinces in 2013 is likely to add to price pressures as consumption gets a boost.

On the supply side, firms will have to deal with higher costs and a lot will depend on upcoming government measures to help reduce the impact.

The rate cut cycle is probably over, but the still-measured pace of inflation will provide the central bank with leeway to keep monetary policy accommodative. We expect no change in the policy rate through to 3Q13 and anticipate one 25bps rate hike in 4Q13.