Malaysia CPI for June jumps 1.7pc

By Rupa Damodaran
rupabanerji@nstp.com.my
2010/07/22

MALAYSIA'S Consumer Price Index (CPI) for June grew 1.7 per cent year-on-year, in line with expectations, indicating the central bank may be done with raising its key interest rate.

Bank Negara Malaysia has raised the main interest rate three times this year as keeping the cost of borrowings at very low levels could stoke inflation.

The latest figures show that inflationary pressures in Malaysia are still mild, economists said.

The Statistics Department said yesterday the index expanded from 111.8 to 113.7 during the month, with food and non-alcoholic beverages posting a 2.7 per cent increase.

Compared with May, the index increased by 0.2 per cent while for the first half of the year, the CPI grew by 1.6 per cent.

Standard Chartered Bank economist Alvin Liew said food-related price increases were again the key contributor to the CPI in June from 1.6 per cent in May.

But HSBC Bank Asian economist Wellian Wiranto said the pace of the food price increases was rather mild and he expects seasonal factors like Ramadan and festivities to spark a temporary increase.

Economists don't think inflation would jump due to the recent increase in the price of sugar and petrol although they expect the "modest" subsidy cuts to continue this year.

"Although last week's move signals the government's intention in removing subsidies, the pace that they adopted also indicates to us that they are much more likely to proceed in 'baby steps' rather than in a 'great leap forward' fashion - not least because they are ever-vigilant on the potential political repercussions," Wellian said.