Intellasia East Asia News – Headline inflation slows slightly in July as rate hike looms

Thailand’s headline inflation rate slowed in July for the first time this year, helped by government support measures, but the pace was still near a 14-year high, reinforcing a view of an interest rate hike next week.

The headline consumer price index (CPI) rose 7.61 percent in July, driven by high energy prices, Commerce Ministry data showed on Friday, and missed a rise of 7.8 percent forecast in a Reuters poll.

The pace, though a hair lower than June’s 7.66 percent increase, was near the highest since 2008.

Despite high energy prices, government controls on goods prices and support measures for low-income earners, as well as a base effect helped slow the rise in inflation, ministry official Ronnarong Phoolpipat told a news conference.

The ministry expects headline inflation to average at 5.5 percent to 6.5 percent this year, in line with other state agencies’ predictions, he said.

The Bank of Thailand (BOT) predicts headline inflation of 6.2 percent this year, well above its target range of 1 percent to 3%.

The BOT is expected to start raising its benchmark interest rate from a record of 0.50 percent at its next meeting on August 10 to contain inflation. The rate has been left unchanged since May 2020.

In July, the core CPI index, which strips out energy and fresh food prices, rose 2.99 percent from a year earlier, higher than a forecast 2.6 percent rise, and faster than June’s 2.51%.

In the January-July period, headline inflation was 5.89 percent and the core rate was 2.01%.

The 7.61 percent increase in July was slower than the median 7.66 percent gain predicted by economists in a Bloomberg survey.

All 15 economists surveyed by Bloomberg as of Friday morning see the BOT lifting the policy rate from a record low of 0.5 percent to tame inflation, which has stayed above the central bank’s target this year despite billions of United States dollars spent in state subsidies to ease the cost of living.

BOT Governor Sethaput Suthiwartnarueput has said rate hikes will be gradual to ensure that higher borrowing cost does not derail the economy’s recovery. A better-than-expected rebound in tourism, that accounted for about a fifth of Thailand’s economy and jobs before the Covid-19 pandemic, may also give room for the central bank to begin policy normalisation.

Prime minister Prayut Chan-o-cha urged the public for patience amid high living costs, including rising fuel prices, saying the government is doing its best to improve the situation. He was speaking as he led senior officials to inspect a project set up to address water shortages in Kanchanaburi province on Thursday.

Gen Prayut said the Commerce Ministry has maintained a cap on the prices of more than 100 items, causing frustration among producers struggling to deal with rising production costs.


Category: Thailand

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