Thai Baht: Inflation rise and THB downside risks – Commerzbank

The Thai Baht's September Consumer Price Index (CPI) rose 2.8% year-on-year, slightly lower than forecasts but the highest since April, edging closer to the Bank of Thailand's target range. Economists predict further inflation rise due to ongoing supply-side pressures, though demand-side forces are seen as minimal. The Thai currency, USD/THB, fell to 33.62, maintaining elevated downside risks to the Baht.

September's CPI data exceeded expectations, with inflation climbing 2.8% yoy, driven by increased energy and food costs. The Commerce Ministry adjusted its 2026 inflation projections to 1.8-2.2%, down from 1.5-2.5% initially, as year-to-date inflation averaged around 1.5%. Despite the data, the September figure remains near the upper limit of the BoT's 1-3% target range.

Looking ahead, headline inflation is anticipated to continue its upward trajectory in the year's latter months, fueled by persistent supply-side strains. Fuel prices are expected to stay high due to ongoing energy supply chain disruptions, while food prices may increase following recent flooding. However, high consumer debt and the elevated cost of living could keep demand-side pressures under control.

The BoT's policy outlook remains unchanged, as the recent inflation spike is largely driven by supply factors, with core inflation and medium-term inflation expectations staying stable. This supports the view that the central bank will likely maintain the policy rate at 1.00% for an extended period, rather than responding to the temporary inflation driven by supply factors.

In foreign exchange, USD/THB declined 0.2% to 33.62, partly due to easing oil prices and a weaker US dollar. Nevertheless, the Thai Baht's downside risks persist. The yield spread between the US 10-year Treasury and 10-year Thai government bond widened to 291 basis points, the highest in a year, diminishing the appeal of THB-denominated assets.