BANGKOK: Thailand's consumer prices fell year-on-year in January for the first time since September 2009, as oil prices dropped, giving the central bank more room to cut interest rates to support a sputtering economy.
A military-led government that seized power in May has struggled to revive growth in Southeast Asia's second-largest economy as exports are sluggish and consumer demand remains subdued due in part to high household debt.
With consumer prices falling, some analysts expect the Bank of Thailand (BOT) to cut its policy rate, which has stood at 2.0 percent since last March, when it holds its next policy review on March 11.
"This will only put more pressure on the BOT to trim its interest rate in the next rate meeting," said Gundy Cahyadi, economist with DBS Bank in Singapore.
The headline consumer price index fell 0.41 percent in January, weaker than the median forecast of a 0.25 percent rise in a Reuters poll. The last time consumer prices fell below year earlier levels was in September 2009.
The central bank switched to targeting the headline CPI inflation rate in January, having earlier targeted the core inflation rate, which strips out fresh food and energy prices.
From February onwards, the government will stop reporting the core inflation rate, but in January it was 1.64 percent, slightly above a 1.57 percent forecast in the poll.
The central bank is targeting inflation in the effective range of 1.0 to 4.0 percent. It expects actual inflation of 1.2 percent in 2015, while warning last week that falling international energy prices increased the chances of inflation in 2015 being below the target range.
The central bank discounted the risks of deflation, however, as non-oil prices have not fallen and domestic demand continues to expand.
January's negative inflation was in line with the central bank's estimate, spokesman Chirathep Senivongs Na Ayudhya told reporters on Monday.
Deflation has led to monetary easing elsewhere in the world, but the BOT held its interest rate steady at its first policy meeting of the year last week.
Lacklustre inflation data pointed more to supply- than demand-side problems, said Kobsidthi Silpachai, head of capital markets research at Kasikornbank in Bangkok. He expected the BOT to keep rates unchanged in March, even though there was room for a cut. Though the military coup last year ended months of street protests that had hurt tourism and consumer and investor confidence, the economy is still finding its feet.
The central bank expects economic growth of 4 percent for this year and just 0.8 percent for 2014, the weakest since the country was devastated by floods in 2011.
Official 2014 GDP is due to be released on Feb. 16.
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