The Bank of Thailand expects inflation to peak this month, suggesting that its 10-month monetary tightening policy might take a breather.

The central bank is "comfortable" with the trend of inflation, Governor MR Pridiyathorn Devakula said yesterday.

He warned consumers not to be surprised if inflation this month surpasses May's 6.2-per-cent rate, as a year ago it was held down by a government cap on the retail price of diesel.

It floated the diesel price in July last year.

"We already forecast that the inflation rate in June would reach the highest level, so don't be alarmed," Pridiyathorn said.

Due to the low base, the inflation rate will start to come

down next month and drop

even further in August. The full impact of higher oil prices was felt by the economy in August last year, he said.

The governor declined to comment on whether 5 per cent was high enough for the policy interest rate to crack down on prices, saying only that inflation was clearly under control.

"We feel comfortable when we see the trend of inflation. The trend is more important than the data," he said.

The central bank does not consider only year-on-year inflation but also month-to-month movements.

Pridiyathorn said the central bank's pre-emptive rate hikes had helped keep inflation in check. It has gradually lifted the 14-day repurchase rate from 1.25 per cent in August 2004 - acting ahead of other central banks - to the current rate of 5 per cent.

"If we didn't raise the rate at that time, inflation would be even higher than what it is now.

"If oil prices hadn't increased in the second round, inflation

would be lower than 6 per cent," he said.

The central bank's rate-setting Monetary Policy Committee agreed at its last meeting that the 5-per-cent level was appropriate for economic stability and

sustainable growth. But it hinted it may have to intervene again in case of unforeseen factors occurring, especially acceleration in inflation.

According to the Commerce Ministry, headline inflation hit a record 6.2 per cent in May due mainly to the 32-per-cent year-on-year climb in petrol prices. Inflation was 5.9 per cent for the first five months of the year.

Core inflation, which is calculated excluding volatile raw food and energy prices, stayed at 2.7 per cent both in May and over the first five months of the year.

The central bank has projected headline inflation for the whole year at 4-5 per cent and core inflation at 2-3 per cent.

Anoma Srisukkasem

The Nation