Consumer prices in Thailand are set to rise less than previously forecast this year, the Commerce Ministry said, after headline inflation rate in June fell to its lowest level since 2021 on lower energy and food costs.

The overall consumer prices will gain 1% to 2% this year, down from 1.7% to 2.7% predicted previously, the ministry said in Bangkok Wednesday. Official data showed the price index rose 0.23% last month from a year earlier, compared with a median estimate of no change in a Bloomberg survey.

The core measure, which excludes fuel and food prices, rose 1.32% year-on-year, the softest reading since early 2022, and below the consensus estimate of 1.4%. Consumer prices in June rose 0.6% from a month earlier and faster than the estimate of 0.4%, the ministry said.

Although price pressures have eased each month this year and is now below the Bank of Thailand’s 1%-3% target range, central bank officials have said it’s likely to stick with monetary tightening as a tourism-led pickup in economic activity and possibly higher spending by a new government pose risks to inflation.

The rate-setting panel will pay more attention to medium-term inflation outlook rather than latest data in deciding policy decisions, officials said last month. The central bank has raised borrowing costs to an eight-year high and flagged upside risks to inflation in 2024.

Still, the latest set of benign inflation readings gives Bank of Thailand greater leeway to pause rate hikes when it meets again on Aug. 2, said Tamara Mast Henderson of Bloomberg Economics.

Softening Core Inflation

“In particular, the ongoing softening in core inflation suggests demand-pull pressures from the recovery in tourism remain manageable,” Henderson said. “More data will be needed to cement that decision. But we think another month of benign core inflation in July would do the trick.”

While the commerce ministry cited lower oil and food prices, global economic slowdown, geo-political tension and high rate of inflation last year to cut the forecast, it flagged a potential drought and the weakening baht as risks.

A weaker baht will have a “direct impact” on oil prices since Thailand is a net energy importer, said Wichanun Niwatjinda, deputy director-general of the Trade Policy and Strategy Office. “The new government measures including those helping cost living and economic stimulus steps will play a key role on price levels,” he said.

Inflation is likely to average 0.77% in the third quarter and 0.62% in the final three months of the year, the ministry said.