VIEW: HSBC Sees Upside Inflation Risks Keeping BoT On Hold

May headline CPI inflation printed above expectations at 1.5% y/y, the first time it has been in the 1-3% band since April 2023, but core was steady at 0.4%. HSBC notes that the increase was due to base effects related to subsidies and the “tapering of diesel subsidies”. It expects further rises in headline “with risks tilted to the upside” allowing the Bank of Thailand to hold rates at 2.5% in 2024 and 2025.

• “The results give the BoT extra legroom to stick to its agenda of guiding the economy's deleveraging cycle, particularly in household debt.” HSBC expects inflation to rise as high as 2.4% y/y in Q1 2025.
• “A full year has already passed since some energy subsidies and price controls were implemented. So these CPI sub-indices normalized on a year-on-year basis by washing out the disinflationary impact of the subsidy.”
• “Due to fiscal constraints, the government recently removed the THB1 per litre excise tax cut in diesel while lifting its price ceiling to THB33 per litre from THB31. Other forms of energy continue to be subsidized, such as cooking gas (or LPG) and electricity and, like diesel, there is a risk that the tapering of these subsidies leads to higher inflation moving forward.”
• “Diesel prices are capped at THB33 per litre until July 31 while cooking gas is frozen at THB423 per 15kg cylinder until June 30. Households who do not consume more than 300KwH a month have a subsidized tariff rate of THB3.99 per unit while households who consume more than that have an unsubsidized tariff rate of THB4.18 a unit (Bangkok Post, 7 May 2024).”