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The ministry is basing its forecast that inflation will remain in positive territory on the expectation that Dubai crude oil will average US$60-$70 (Bt2,043-Bt2,384) per barrel this year, while the US dollar/baht exchange rate will be 35-36.

Inflation should head up in the second half as oil prices advance and the baht appreciates against the dollar, it maintains.

"We'll see in the next two months if the target should be revised," permanent secretary Siripol Yodmuangcharoen said yesterday.

Inflation shrank 4 per cent year on year in June, the largest monthly contraction since the 1997 crisis.

However, Siripol said Thailand had not yet fallen into deflation as the prices of some consumer items moved up during the month. He also anticipates inflation swinging back to a positive number in August.

Compared to the previous month, June inflation rose 0.4 per cent.

Inflation in the first six months of this year contracted 1.6 per cent year on year, due to the drop in energy, electricity and water bills as well as the prices of textiles, garments, food and beverages.

"Though this represents the sixth consecutive month of contraction, we don't expect deflation as some items still witnessed a price hike. Coupled with the economic stimulus measures, Thailand should not head towards deflation," Siripol said.

A source from the ministry added that inflation this month could contract 2-3 per cent year on year, due to the government's continued subsidies on energy, water and transportation bills, before moving into positive territory in August.

"The inflation target of zero to 0.5 per cent does not take into account the possibility that the subsidies, which end this month, will be extended. If the measures are extended, inflation could be slightly below target," he said.