Thailand: Supply-led pressures and prolonged hold for BoT – UOB

UOB Global Economics & Markets Research has examined Thailand's July Consumer Price Index (CPI) decline, attributed to reduced fuel prices, while core inflation shows a slight increase. Despite the undershoot in headline CPI, analysts expect inflation to remain supply-driven, with the Producer Price Index (PPI) still high. They forecast headline CPI at 2.8% in 2026 and 1.4% in 2027, alongside a steady benchmarking of the Bank of Thailand's policy rate at 1.00% through the end of 2027.

Core CPI remains elevated at +1.34% y/y and +0.08% m/m, indicating ongoing indirect cost transmission. The Bank of Thailand's June projections foresee headline inflation at 2.8% in 2026 and 1.4% in 2027, alongside core inflation at 1.5% and 1.4% in the same years, as supply-side pressures and unfavorable base effects decrease in the following year.

The analysts stick to their forecasts for headline CPI at 2.8% in 2026 and 1.4% in 2027, anticipating the Bank of Thailand to keep the policy rate at 1.00% through year-end 2027. Factors driving potential fluctuations mainly remain oil prices, the Thai Baht, and the current account, rather than domestic demand-driven tightening.

Consequently, a prolonged rate hold is considered the most balanced option to maintain price stability without imposing undue stress on already fragile financial conditions.