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Despite the announcement of a further negative inflation figure for last month, the Commerce Ministry and economists voiced the view yesterday that it represents only technical deflation, as the prices of most consumer goods remain high.

Though inflation is expected to keep dropping until the end of the first half, it is expected to increase in the second half as the government's economic stimulus packages take effect.

Last month, the Consumer Price Index showed a 0.1-per-cent decrease year on year, putting inflation at minus 0.3 per cent for the first two months of this year combined.

Commerce Ministry permanent secretary Siripol Yodmuangcharoen said that falling inflation should not affect the economy, or imply low purchasing power. This deflation is only technical, he said, as it is the result of declining oil and commodity prices rather than cheaper consumer goods.

"Since the prices of most consumers goods remain unchanged compared to the same period last year, it shows that consumers are not spending any more than they did in 2008," Siripol said.

Of the 417 consumer goods weighted in the ministry's inflation-calculation basket, the price of 201 products remained unchanged, 126 increased and only 90 were cheaper.

If this were true deflation, the prices of more than half of the consumer goods should have dropped following lower purchasing power. Moreover, in economic terms, prices should continue to drop for six consecutive months for it to be considered real deflation.

However, Siripol said, there are no signs of purchasing power dropping because demand is still high and people are not afraid to spend despite the current economic environment. He also believes inflation will increase in the second half following an expected economic recovery.

The ministry is sticking to its annual inflation target of between zero and 0.5 per cent for this year.

Inflation went into negative territory last month, mainly due to the price of food and beverages dropping by 0.3 per cent, even though non-food items became 1.8 per cent more expensive.

Thanavath Phonvichai, director of the University of Thai Chamber of Commerce's Economic and Business Forecasting Centre, said core inflation was rising despite the negative numbers last month.

Core inflation, which excludes volatile food and energy prices, surged 1.8 per cent year on year in February, and increased by 0.4 per cent month on month. Core inflation in the first two months grew by 1.7 per cent year on year.

"Headline inflation has dropped following lower oil prices, but core inflation is still rising, which shows that consumers are still spending as per normal," Thanavath said.

However, he warned that unemployment would rise due to lower inflation or deflation, as people would be afraid to spend. It is likely that the number of unemployed people would rise to more than 1 million by April or May, from the current 700,000.

The centre predicts that inflation in Thailand will come in at minus 0.5 per cent to minus 1 per cent this year.