Thai inflation hits 14-month high in fresh headache for policymakers

[June 02, 2014] By Orathai Sriring and Kitiphong Thaichareon

BANGKOK (Reuters) - Thailand's headline inflation rate accelerated to a 14-month high in May on higher food and energy prices, government data showed on Monday, posing an additional headache for policymakers facing a cooling economy and fears of growing public unrest.

The headline consumer price index rose 2.62 percent in May from a year earlier, the Commerce Ministry said. That compared with the median forecast in a Reuters poll for a 2.59 percent rise and followed a 2.45 percent increase in April.

Analysts said the central bank was likely to stand pat at its next policy review on June 18 as it weighs the dilemma of rising inflation and a slowing economy. The new military government faces the task of reviving an economy that shrank in the first quarter after months of political unrest.

"As inflation is going higher and the new government is able to push ahead economic measures, there is no need for the central bank to cut rates further, maybe all year," said Sarun Sunansathaporn, economist at Tisco Securities in Bangkok.

"But uncertainty remains high, so it is unlikely to rush to raise interest rates as well," he added.
 

The core inflation rate, which strips out fresh food and energy prices, quickened to 1.75 percent year-on-year in May, from 1.66 percent in April and against 1.70 percent in the poll. That was still well within the Bank of Thailand's target range of 0.5-3.0 percent, which guides monetary policy.

At its last meeting in April, the central bank held the one-day repurchase rate, its key policy rate, steady at 2.0 percent - a level last seen in December 2010 - after two cuts since November to shore up the economy.

The central bank has forecast headline inflation of 2.5 percent for this year and core inflation of 1.5 percent. It is scheduled to release its new economic forecasts on June 27.

Food and beverage prices rose 4.39 percent in May from a year earlier after rising 4.61 percent in April, Monday's data showed, pushed up by drought in parts of the country. Energy and utility prices were also higher.

Commerce Ministry adviser Ampawan Pichalai told a briefing that "the new government's policies to maintain the price of diesel and cooking gas will help bring down living costs and ease inflationary pressures."

Prices in Thailand have been contained by government controls and subsidies as well as weaker domestic demand, which has been hurt by the months of unrest in Bangkok before the army seized power on May 22 in an effort to restore order.

Air Chief Marshal Prajin Juntong, who is overseeing economic matters for the junta, on Sunday outlined a list of emergency measures to help the economy, including price caps on fuel.

(Additional reporting by Satawasin Staporncharnchai; Editing by Chris Gallagher)

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