Articles
3 July 2020

Thailand: Has inflation bottomed?

We don’t think the price gains seen in June will be durable enough to bring inflation back into positive territory for the rest of the year

270318-Thailand-bangkok-shopping-tourism
Source: Shutterstock
-1.6%

June CPI inflation

Better than expected

An upside inflation surprise

Thailand’s consumer price inflation remained in negative territory for a fourth straight month in June, though a rate of -1.6% year-on-year was a significant recovery from the post-global financial crisis low of -3.4% reached in May. The consensus median was for a modest improvement to -3.1% (ING forecast was -3.3%).

The relaxation of the Covid-19 lockdown should have brought back some pent-up demand. However, a sharp recovery in inflation appears to be largely a supply-side phenomenon instead, explained by the surge in utilities and transport prices. Utilities and transport components suffered the most at the start of the lockdown with month-on-month plunges of 21% and 4.3%, respectively in April. Both returned with 24% and 2.6% surges in June as the lockdown ended.

Inflation in most other CPI components was little changed from May. And so was core inflation, which remained close to zero, indicating a lack of demand-side pull on prices.

What's driving CPI inflation?

 - Source: CEIC, ING
Source: CEIC, ING

Has inflation bottomed?

The economy is facing a continued downdrift ahead as the key drivers of exports and tourism remain missing in action, and weakness from external sectors has broadened out to domestic demand. Consumer confidence has been at a record low and the threat of rising job losses offers little hope of it coming back to the pre-Covid level anytime soon.

For now, inflation appears to have bottomed. But we don’t think the extent of price gains observed in June will be durable enough to bring inflation back into positive territory in the rest of the year. However, it is enough to provide a boost to our annual inflation forecast. If it does not worsen from here, we see inflation staying near June's pace for the rest of 2020. We revise our annual inflation forecast to -1.5% from -2.3%.

While persistent negative inflation calls for further monetary easing, there isn’t any easing space left for the Bank of Thailand in this cycle.


Disclaimer

"THINK Outside" is a collection of specially commissioned content from third-party sources, such as economic think-tanks and academic institutions, that ING deems reliable and from non-research departments within ING. ING Bank N.V. ("ING") uses these sources to expand the range of opinions you can find on the THINK website. Some of these sources are not the property of or managed by ING, and therefore ING cannot always guarantee the correctness, completeness, actuality and quality of such sources, nor the availability at any given time of the data and information provided, and ING cannot accept any liability in this respect, insofar as this is permissible pursuant to the applicable laws and regulations.

This publication does not necessarily reflect the ING house view. This publication has been prepared solely for information purposes without regard to any particular user's investment objectives, financial situation, or means. The information in the publication is not an investment recommendation and it is not investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Reasonable care has been taken to ensure that this publication is not untrue or misleading when published, but ING does not represent that it is accurate or complete. ING does not accept any liability for any direct, indirect or consequential loss arising from any use of this publication. Unless otherwise stated, any views, forecasts, or estimates are solely those of the author(s), as of the date of the publication and are subject to change without notice.

The distribution of this publication may be restricted by law or regulation in different jurisdictions and persons into whose possession this publication comes should inform themselves about, and observe, such restrictions.

Copyright and database rights protection exists in this report and it may not be reproduced, distributed or published by any person for any purpose without the prior express consent of ING. All rights are reserved.

ING Bank N.V. is authorised by the Dutch Central Bank and supervised by the European Central Bank (ECB), the Dutch Central Bank (DNB) and the Dutch Authority for the Financial Markets (AFM). ING Bank N.V. is incorporated in the Netherlands (Trade Register no. 33031431 Amsterdam).