Thailand's inflation eased to 3.4%

Government unlikely to cut rates.

According to Nomura, Thailand's CPI inflation eased to 3.4% y-o-y from 3.6% in December (Consensus: 3.5%; Nomura: 3.4%). Higher food inflation (4.3% y-o-y in January from 4.0% in December) was offset by lower non-food inflation (2.8% from 3.4%). 

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The pickup in food prices was led by higher meat, poultry and fish, rice and egg and milk prices, while vegetable and fruit prices was still up on the year, but eased from the previous month due to the impact of cold weather, according to the Ministry of Commerce.

With core inflation showing sustained stability, remaining within Bank of Thailand‟s 0.5-3.0% target, we reiterate our 2013 CPI inflation forecast of 3.2%. Note also that the Ministry of Commerce rebased the CPI series to 2011 from 2007, which will create a small downward bias to our previous core inflation forecast.

We believe the Bank of Thailand (BOT) will remain on hold at its meeting on 20 February and for the rest of the year. We do not think the MPC will cut rates in light of still-strong private credit growth (14.2% y-o-y versus 15.9%; it was up by 1.1% m-o-m – the 35th consecutive monthly increase) and domestic demand.

In addition, despite softer CPI, 12-month ahead inflation expectationsdid not drop, have remained at 3.6% for the last four months.

Longer term, with domestic demand bolstered by fiscal stimulus, we expect GDP to remain solid this year. But with core inflation remaining within the target range and emerging pressures on the BOT to contain THB appreciation, rate hikes remainunlikely.