BANGKOK, Nov 1 (Reuters) - Thai inflation rose in October as flooding pushed up the price of certain foodstuffs and other goods but the increase was smaller than expected and most economists still expect the central bank to leave interest rates on hold for now.
Headline inflation was 4.19 percent versus 4.03 percent in September. But even if it had been as high as 4.6 percent as some economists had forecast, tighter monetary policy has been ruled out by the economic devastation caused by the floods.
The central bank has said it could hold an emergency meeting on interest rates because of the flooding and some economists say the odds on a policy rate cut have increased, but most still expect it to be held at 3.50 percent this year.
Core inflation, which excludes fresh food and energy and which the central bank aims to hold in a range of 0.5 to 3.0 percent, was practically unchanged in October at 2.89 percent.
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KEY POINTS:
- Headline CPI +4.19 pct y/y vs +4.03 pct in Sept (Reuters poll +4.5 pct)
- Core CPI +2.89 pct y/y vs +2.92 pct in Sept (Reuters poll +3.1 pct)
- Food/beverage prices +9.86 pct y/y vs +8.84 pct in Sept
- For a table of the data
- Reuters poll
- For graphic on Asia Asia consumer and food inflation:
http://link.reuters.com/wah74r
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COMMENTS:
THANOMSRI FONGARUNRUNG, ECONOMIST, PHATRA SECURITIES
'The inflation figure was better than expected. The number reflected softer-than-expected increases in prices of food. Overall, inflation remained a threat and should not alter the view of the Bank of Thailand on interest rates.
'We think the Bank of Thailand will maintain its policy rate for a while. Our forecast is for the rate to be maintained at 3.5 percent later this month. The policy rate may hold at this level through the course of next year, given the pressures on inflation coming from wage rises and the resumption of the oil fund levy.
'The impact of flooding may be temporary, mainly hurting growth in the fourth quarter. The economic situation should start to improve in the first quarter and return to normal, probably from late in the second quarter. The risk to our interest rate view will come from weaker-than-expected domestic demand, if this is the case.'
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PIMONWAN MAHUJCHARIYAWONG, ECONOMIST, KASIKORN RESEARCH CENTER
'As expected, the flooding has pushed up food and food-related prices. Going forward, we expect food and agricultural prices to continue to stay at a high level for the remaining two months of this year and perhaps going into early 2012 before improving later in the year.
'Inflation will stay high in coming months. We expect inflation of 3.9 percent this year and in 2012.
'Our Kasikornbank group view on interest rates is still the same -- we expect the rate to be held until the end of this year. It's still hard to forecast a cut at this point: we'll have to see the direction of inflation and any economic improvment in the coming period.'
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MARKET REACTION:
- The baht was at 30.79/83 per dollar after the data came out, versus 30.79/81 in early morning trade.
- The benchmark stock market index was down just 0.01 percent at 0420 GMT after the data; it had also been flat just before.
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LINKS:
For details, see Commerce Ministry website: http://www.indexpr.moc.go.th/price_present/cpi/stat/test/select_cpig_region.html?tab
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BACKGROUND
- The Bank of Thailand kept its benchmark rate, the one-day repurchase rate, steady at 3.50 percent on Oct. 19, pausing after a year of tightening because of the deteriorating international economy as well as the flooding at home. Its next scheduled meeting is on Nov. 30..
- It has said it could call a special meeting before then if necessary but it has also said that a rise in prices as a result of severe flooding will be temporary.
- Economists generally expect the central bank to hold the policy rate until the end of next year. Some say the odds on a cut in the near term have increased.
- The central bank slashed its 2011 economic growth forecast to just 2.6 percent from 4.1 percent last week; it said it might review that forecast again in November as the impact of the worst floods in half a century is far from over..
- But it has said the new government's economic policies and spending on reconstruction after the flooding could add to inflationary pressures. It predicted price rises of 3.5 percent in 2012 versus 3.8 percent this year, with core inflation at 2.5 percent after an expected 2.4 percent this year.
- The central bank aims to keep core inflation -- which excludes energy and fresh food prices -- in a range of 0.5-3.0 percent, which guides monetary policy. But it plans to switch to targeting headline inflation next year.
(Reporting by Bangkok Newsroom; Editing by Alan Raybould) Keywords: THAILAND ECONOMY/CPI
(orathai.sriring@thomsonreuters.com)(+662 6489729)(Reuters Messaging: orathai.sriring.reuters@reuters.net)
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Source: http://www.xe.com/news/2011/11/01/2252093.htm?utm_source=RSS
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