Inflation is projected at 3.0% to 3.5% next year as raw materials and commodity prices continue to rise.

"The index has started to normalise. This indicates that people have more confidence in the economy and have started spending more, and this will drive manufacturing," said Yanyong Phuangrach, permanent secretary to the Commerce Ministry.

The consumer price index, a measure of prices for 417 key products, rose 0.4% year-on-year in October, the first time this year the index has turned positive on an annualised basis. The CPI posted a 1% decline year-on-year in September.

The rise was driven by food and beverages, as well as medicines, health-care services and utilities. On a monthly basis, consumer prices inched up 0.2%.

The producer price index (PPI), which covers 506 products, also increased for the first time this year to 157.7 in October, a 2.5% increase year-on-year.

Core inflation, which excludes raw food and energy prices, fell by 0.1% in October from the year before but rose 0.1% from September due mainly to a rise in air fares, car batteries and alcohol.

For the first nine months of the year, inflation dropped by 1.5% from the same period in 2008, due mainly to a fall in oil, power and water prices. The core CPI edged up 0.3% year-on-year for the first nine months.

Mr Yanyong said consumer prices may rise by 1.4% year-on-year this month and nearly 3% in December, with inflation averaging zero to -1% this year.

"The government should therefore take this opportunity to put in place economic stimulus measures under Thai Khem Kaeng projects to stimulate economic recovery on a continued basis. The central bank ... should also maintain a low-interest rate policy," he said.

Mr Yanyong said for 2010, the inflation forecast of 3% to 3.5% was based on assumptions that Dubai crude oil averaged $70-80 per barrel and the baht traded at 31 to 33 baht against the US dollar. The Commerce Ministry also assumes the government will extend fuel and utility subsidies through next year.

Dubai oil price futures contracts are trading around $77-78 per barrel, while the baht is quoted at 33.41 baht a dollar.

Source: Bangkok Post, 3 November 2009