Thailand inflation to drop to 3.1%

Will the government cut rates anytime soon?

According to DBS, headline inflation is expected to come in at 3.1% YoY, down a notch from 3.2% in the preceding month. Price pressures have been surprisingly muted despite the robust domestic economy.

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Notably,the extension of pro-growth policies and the hikesin minimum wages earlier this year has not led to a noticeable bump up in prices.

By components, administered prices on electricity and watersupply have gone up the most overthe past year, but easing food pricesin recent months have helped to reduce the overall impact on inflation.

Moreover, bahtstrength is also helping to ease imported price pressures.

Again, we highlightthatinflation islikely to trend up moderately over the coming quarters and is poised to breach the 4% mark towards the end of the year.

There is considerable momentum on consumer spending and the upcoming projects from the THB 2.2trn infrastructure plan will add even more demand-pull pressures.

With asset prices starting to look elevated and upward drift in inflation going forward, there is limited room for the central bank (BoT)to cut rates even as the government favors a weaker baht to maintain export competitiveness.