BANGKOK/SYDNEY - INFLATION in Thailand, South Korea and Australia plunged in November in sync with a global retreat, giving central banks room to slash interest rates to soften the blow from the worst financial crisis in decades.

Thailand's annual inflation tumbled to a 14-month low, paving the way for a rate cut later this week, which would make the South-east Asian nation the latest addition to the worldwide campaign to avert a deep global recession.

South Korea saw its inflation hitting a seven-month low, keeping the central bank firmly in easing mode and in Australia, a sharp drop in a key inflation gauge boosted bets on another steep rate cut to help the cooling economy.

Japan, where borrowing costs are already close to zero limiting its wiggle room on rates, is bracing for another spell of a devastating combination of falling demand and prices.

Thailand saw its inflation tumbling even more than expected to just 2.2 per cent from 3.9 per cent in October and a decade high above 9 percent scaled in July. Its central bank had raised rates as recently as August.

'The Bank of Thailand will probably have to cut interest rates this time even more than it expected,' said Charl Kengchon, economist at Kasikorn Research Centre.

Markets fully priced in a quarter point rate cut on Wednesday, with a large chance for a bigger cut and more easing ahead, given government warnings the economy, hit by the global downturn and political unrest at home, may stagnate next year.

Only Indonesia, grappling with capital outflows and a weakening currency, bucked the inflation trend in Asia with an 11.68 per cent rise in its consumer price index in November compared with an 11.77 per cent rise in October - too high to trigger an interest rate cut.

Steep cuts
Australia's central bank is believed to almost certainly slash its benchmark rate by at least 75 basis points on Tuesday on top of 200 basis points of cuts since early September with a bigger move seen as a strong possibility.

'We suspect a move of 100 basis points is more likely now,' said Michael Workman, a senior economist at Commonwealth Bank.

'With inflation slowing more quickly than expected, there's really no harm in being aggressive to support growth.' In South Korea, Asia's fourth-largest economy, inflation slowed to 4.5 per cent from 4.8 per cent in October, giving the central bank more ammunition to cut rates further to shore up the economy hit by a slump in exports.

In Japan, wage data out on Monday showed total cash earnings of Japanese workers fell 0.1 per cent from a year earlier, the first drop in 10 months, boding ill for the world's second biggest economy, which is already in a recession.

'We are moving to the next phase of shrinking consumption - some call it deflation - production going down and prices going down,' Economy Minister Kaoru Yosano told the Financial Times in an interview published on Monday.

The financial crisis that began with a US housing market slump last year and escalated into a full-blown global downturn has already knocked several big economies into recession including Germany, Italy and the euro zone. Most economists believe the United States and Britain will soon follow.

For months, mounting evidence of slowing growth combined with soaring inflation, fuelled by the final leg of a record-breaking bull run in commodities, complicated the policy response to the looming downturn.

But with oil prices now at just over a third of their July peaks and inflation retreating around the world at a pace that surprised even the most dovish central bankers, bets are on massive monetary policy loosening around the globe.

In Australia, some economists expect the benchmark rate to drop from 5.25 per cent to as low as 2.5 per cent next year.

'There has been a quite staggering turnaround in price pressures,' said Joshua Williamson, senior economist at TD Securities, which compiles Australia's monthly inflation gauge.

'It fundamentally changes the economic and policy outlook.' The European Central Bank is expected to cut rates by 75 basis points or even a full percentage point after data showed the biggest ever drop in euro zone inflation. -- THOMSON REUTERS