The government has cut its full-year inflation projection to a range of 0.6% to 1.3% after February showed a negative rate for the second month in a row.
The move came after the Commerce Ministry yesterday reported consumer prices based on 450 products and services shrank a further 0.52% year-on-year last month after contracting 0.41% in January.
These are the first negative readings since September 2009.
Commerce Ministry inspector-general Somkiat Triratpan attributed the contraction to a decline in prices for energy, public transport and fresh foods such as pork, chicken, eggs and certain fruits that were in greater supply due to the favourable weather.
On a monthly basis, prices managed to edge up by 0.12% from January.
February's core inflation rate, which excludes volatile food and energy, was 1.45% year-on-year, with prices edging up 0.09% from January.
"We believe Thailand will not enter into deflation [in which prices of goods and services fall for six months in a row], as global oil prices are expected to rise later this year, driven by higher and strong demand during the cool season," Mr Somkiat said.
"More importantly, the government is reviving up myriad infrastructure investment while people start to resume their spending."
Inflation is expected to remain at -0.4% in the first quarter due to falling oil prices and lower fuel adjustment tariff rates.
The ministry yesterday cut its inflation projection from an earlier forecast range of 1.8% to 2.5%, based on oil prices of US$50-60 a barrel, an exchange rate of 32-35 baht to the US dollar and Thai GDP growth of 3-4%.
Charl Kengchon, managing director of Kasikorn Research Center, said February's negative inflation was expected after the recent plunge in oil prices.
But deflation is not occurring, because core inflation remains in positive territory and consumer confidence has not seen a sharp fall, he said.
"Current economic conditions could be referred to as disinflation or highly distorted inflation stemming from low oil prices," Mr Charl said.
Domestic political uncertainty is deemed as a risk of deflation, he said.
Deflation would induce both households and businesses to tighten spending, Mr Charl added.
Tim Leelahaphan, Maybank Kim Eng Securities' Thailand economist, attributed last month's negative inflation to plummeting oil prices and transport costs.
He is cutting his full-year headline inflation view to 1.5% from an earlier 2.25%.
"The falling inflation is caused by a supply-side element coming from low oil prices, which is not a controllable factor," Mr Tim said.
He said the current economic conditions could be regarded as negative inflation, while a state of deflation depended on whether one considered three months or six months as the defining time period.
Inflation is expected to rise in the second half of this year on increasing domestic demand, a probable rebound in retail fuel prices, a possible hike in value-added tax and rising salaries for civil servants, Mr Tim added.