Thailand's Inflation Accelerates, Supporting Central Bank's Rate Increase

Thailand’s inflation accelerated in July, supporting the central bank’s view it may need to raise borrowing costs further.

An index of consumer prices rose 3.4 percent last month from a year earlier after climbing 3.3 percent in June, the Commerce Ministry said today. The median estimate of 12 economists in a Bloomberg survey was for a 3.6 percent increase.

The Bank of Thailand last month raised its benchmark interest rate for the first time in almost two years, joining neighbors from Malaysia to India in boosting borrowing costs as the Asian rebound gained momentum. Deputy Governor Bandid Nijathaworn said July 21 rate increases “will continue” with economic recovery.

“Inflation in the second half is on an uptrend in line with higher food prices,” Pimonwan Mahujchariyawong, an economist at Kasikorn Research Ltd. in Bangkok, said before the report. “The central bank is expected to continue raising the key rate to preempt surging inflation next year.”

The central bank on July 23 raised its forecast for economic growth this year to as much as 7.5 percent, citing exports and recovering local demand after the country’s political unrest in April and May.

“Inflation is quite sustained in line with economic growth,” Yanyong Phuangrach, permanent secretary for commerce, said at a media briefing. “It’s still well within our forecast range of between 3 percent and 3.5 percent. The average for the whole year won’t exceed 3.5 percent.”

Core Inflation Gains

Thailand’s core inflation index, which excludes fresh food and fuel prices, rose 1.2 percent last month from a year earlier, the Commerce Ministry said. That matched the median forecast in a Bloomberg News survey of 11 economists.

Prime Minister Abhisit Vejjajiva’s Cabinet last month extended subsidies on public transportation and energy costs for six months to help reduce the public’s burden following the political violence.

“We think inflation from the third quarter may slow a bit,” Yanyong said. “There is no sign of price increases from the key products that we monitor.”

To contact the reporter on this story: Suttinee Yuvejwattana in Bangkok at Suttinee1@bloomberg.net

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