Thailand inflation balloons to a 13-month high

Average inflation for 2012 sat at 3%.

According to DBS, infation ended 2012 at a 13-month high of 3.6% YoY in December. This brings average inflation for 2012 to just 3.0%. Going forward, this subdued pace of inflation is unlikely to continue and the firm expects inflation to breach 4% by 2Q before stabilizing around that level for the rest of this year.

Here's more from DBS:

Fundamentally, price pressures are likely to come to the fore. The hike in minimum wages across the remaining 70 provinces and recovering external demand should translate into demand-pull pressures.

On the supply side, firms will have to deal with higher manpower costs and some of these costs are likely to be passed on to consumers. All these suggest that the rate cut cycle is over.

Instead, the central bank (BoT) is likely to keep the policy rate steady at 2.75% in 1H on account of the still-measured pace of inflation. Going into 2H price pressures may become more apparent and we have one 25bps rate hike penciled in for 4Q.