Thailand must brace itself for looming price pressures

But the centrabl bank is not too concerned.

According to DBS, headline inflation is set to ease marginally to 3.3% YoY in October, from 3.4% in September.

Here's more from DBS:

Notably, rise in inflation from 2.7% in August was in part explained by an increase in taxes for tobacco and alcoholic beverages.

As long as core CPI stays relatively low (around 2% YoY), the central bank (BoT) is unlikely to be too concerned about price pressures. This has also been reflected in the BoT’s decision to slash the policy rate by 25bps to 2.75% at the previous monetary policy meeting.

However, price pressures are likely to mount in the second half of 2013. With interest rates staying low and loan growth staying robust, some price pressures will inevitably show up.

Moreover, the government has been maintaining a pro-growth stance through the rice-pledging scheme and the first car buyer scheme.

The THB 300 daily minimum wage is also set to be rolled out nationwide early next year. Average inflation is expected to reach 3.7% in 2013 and some form
of monetary tightening may be needed by end-2013.