Thai inflation higher than expected
Thailand’s headline inflation rate rose more than expected in September but that was partly due to a low base last year, so the central bank is unlikely to change its stance of leaving policy on hold for now as risks to economic growth remain high.
Annual inflation was at 3.38 per cent in September, its highest level since March, compared with 2.69 per cent in August and against the median forecast of 3.2 per cent by economists in a Reuters poll.
Core inflation, which strips out fresh food and energy prices and which the Bank of Thailand (BOT) uses to guide monetary policy, rose to 1.89 per cent in September from 1.76 per cent in August, compared with the 1.8 per cent forecast in the poll.
The BOT aims to keep core inflation in a range of 0.5-3.0 per cent and sets monetary policy to achieve that.
“September’s inflation was higher than expected, but due partly to the last year’s favourable base effect,” said Usara Wilaipich, senior economist at Standard Chartered Bank. “If pressures gain further momentum, this will complicate monetary policy decisions, should downside risks to growth intensify later on. Even so, we reckon that risks to growth will continue to outweigh inflation risks,” she added.
Vatchari Vimooktayon, the Commerce Ministry’s permanent secretary, told a briefing that inflation should stabilise.
“The ministry has revised down its inflation forecast for this year as government measures to freeze prices plus subsidies will help reduce inflationary pressures,” she said.
It is now forecasting headline inflation of 3.0-3.4 per cent for 2012, rather than 3.3-3.4 per cent, she said.
Inflation has been held down by government price controls and subsidies for energy, utilities and public transport.
Food and drink prices rose 3.66 per cent in September from a year earlier, down from 4.02 per cent in August.
The central bank has forecast headline inflation of 2.9 per cent for this year and Governor Prasarn Trairatvorakul told Reuters last month it could be lower than that.
In the first nine months of this year, headline inflation was 2.94 per cent and core inflation 2.19 per cent, the ministry said.
Earlier on Monday, Indonesia’s annual inflation rate eased to 4.31 per cent, lower than expected, from 4.58 per cent in August.
With inflation broadly under control, policymakers are likely to focus on supporting economic growth as global risks increase.
The central bank left its policy rate unchanged at 3.0 per cent on Sept. 5 for a fifth meeting, saying that domestic demand and credit growth was robust. But two of the five policy members present voted for a quarter-point cut because of the impact of the global slowdown on exports.
The central bank has said it is ready to adjust the rate if needed but Governor Prasarn has said that cutting rates to support the economy could undermine financial stability since demand for credit is growing strongly.
“We think the higher-than-expected figures on both headline and core CPI will give the monetary policy committee a headache at the next meeting because on the one hand we see slowing exports and, on the other, rising inflation in September,” said Nuchjarin Panarode, an economist at Capital Nomura Securities.
“But we still expect the BOT will leave the policy rate on hold at 3 per cent ... For the moment, we think domestic demand is still a supporting factor that should help cushion the Thai economy,” she added.
The next meeting is on October 17. For some economists, the case for cutting rates was strengthened by data on Friday showing that factory output in August tumbled 11.32 per cent from a year earlier.
Factory output in the current quarter will be less than the previous quarter, and some economists think the economy will shrink in July-September from the previous quarter.
The BOT made quarter-point rate cuts in November and January to help industry recover from devastating floods in late 2011.
Most economists expect the central bank to keep the rate steady for the rest of the year as the economy has picked up after a slump caused by the floods despite the global slowdown.
Last week, the BOT said it would have to cut its export growth forecast for this year, already scaled back to 7 per cent, but it is sticking to its GDP forecast of 5.7 per cent growth. Due to the floods, the economy grew just 0.1 per cent in 2011.