Despite Bank of Thailand Governor MR Pridiyathorn Devakula's indifferent reaction to the May inflation rate, the higher-than-expected data boosted the chances that the benchmark interest rate would be raised at the Monetary Policy Committee meeting next week.

Thailand's consumer price index rose 6.2 per cent on the year in May, matching a seven-year high set in October, according to data released Thursday. Core inflation, excluding volatile food and fuel prices, increased by 2.7 per cent from the same period last year.

Pridiyathorn showed a distinct lack of concern about the data, leaving some uncertainty about how the interest rate decision would go.

"I'm not concerned with the data," he said, though admitting that it was above the central bank's forecast of 6 per cent. Pridiyathorn said that the headline inflation was high due mainly to rising fuel prices while the core inflation, which excludes volatile energy and food prices, remains in the target range.

He also said that fuel prices had reached their peak, according to many observers.

Thanomsri Fongarunrung, an economist with Phatra Securities, told Dow Jones Newswires that she didn't regard the central bank governor's comments as indicating that there would be a pause in the tightening cycle, only that he was trying to reassure the market that the cycle would end soon.

Thanomsri expects a 25-basis point increase in the 14-day repurchase rate on June 7 when the central bank's Monetary Policy Committee convenes. The increase would raise the benchmark rate to 5 per cent. Thanomsri expects the increase to be the last in the current tightening cycle.

The direction of the repurchase rates has been hotly debated in the past few weeks. Finance Minister Thanong Bidaya sparked the debate when he suggested that the rate should not be raised to avoid exacerbating problems for consumers who are already suffering from soaring oil prices and higher expenses. The May data forced investors to start expecting increase next week.

Despite the May figures, Karun Kittisataporn, permanent secretary of the Commerce Ministry, insisted that inflation in the first half of the year would not exceed 6 per cent, even though the five-month average inflation was 5.9 per cent and rising.

 "Headline inflation in May did not surprise us because many goods and services prices were adjusted in the month," Karun said.

He attributed the high inflation to a 40-per-cent increase in train tickets, and the start of school. Despite fuel prices affecting the price of consumer goods, the ministry is confident headline inflation start falling and not exceed 4.5 per cent for the whole year.

"But after June we might need to revise the annual target, as oil prices could rise in the latter half," he said, adding that the effects of fuel prices on manufacturing industries was the authorities' current worry.

In the first five months of the year, fuel costs increased 32 per cent year on year.

In the food and beverage sector, prices increased 0.36 per cent in May from April. But prices have increased in soft drinks, bread, fish products and sticky rice.

Prices in the non-food and beverage sector saw a 0.9-per-cent increase, largely because of the fuel price hike.

In an effort to reduce the burden on consumers, Karun said the ministry would closely monitor prices and would not allow the price of any item to rise too fast.

Stock analysts said the inflation data did not move the market because it was largely expected. The Stock Exchange of Thailand index ended up 0.87 point, or 0.1 per cent, at 710.30, after trading in a narrow range between 707.72 and 712.58.

The inflation did not move the baht either. The currencty ended lower against the US dollar Thursday. The dollar ended at Bt38.25, up from Bt38.08 at Wednesday's Asian close.

Petchanet Pratruangkrai,

Anoma Srisukkasem

The Nation