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Malaysia’s August inflation seen steady at 1.4%

September 17, 2012

KUALA LUMPUR: Malaysia’s annual inflation rate in August likely remained at the same level as in July, with prices kept in check by government subsidies despite higher consumption during the Aidilfitri celebrations.

The consumer price index (CPI) likely rose 1.4% in August from a year earlier, according to the median of forecasts in a Reuters poll of of 17 economists. The forecasts ranged from 1.2% to 1.5%.

When inflation moderated to 1.4% in July, it was the lowest level since March 2010. It peaked at 3.5% in June last year.

Malaysia celebrated the end of the Muslim fasting month of Ramadan in August, but minimal impact is expected on consumer inflation even though food consumption and travel activities rose, economists said.

“There may have been small price increases in healthcare, food and transport. Controlled fuel prices are however limiting the pass-through from volatile global oil prices,” said Chua Hak Bin, an economist with Bank of America Merrill Lynch.

Essential foods and fuel in Malaysia are subsidised by the government. It has been working towards a gradual removal of subsidies this year to reduce the budget deficit, but those plans appear to have been put on the backburner amid expectations of general elections that have to be called before April 2013.

Some economists expect inflation to pick up in the second half of the year on strong domestic demand and higher global food prices. The government will also unveil the 2013 budget on Sept 28, which may contain generous measures to shore up support ahead of the elections.

Malaysia’s central bank has maintained its 2012 inflation forecast at 2.5% to 3% but said last week, after its latest policy rate decision, it does not expect stronger domestic demand “to result in inflationary conditions”.

The central bank left its key interest rate unchanged for the eight consecutive time at its Sept 6 meeting. The decision to hold rates at 3.0% had been unanimously expected after Malaysia’s economy grew at a surprisingly strong annual pace of 5.4% in the second quarter.

A jump in private and government investment helped offset weakness in exports amid faltering global demand, the central bank said at the release of second quarter GDP data last month.

Many economists do not expect a rate change till after 2012. The next rate decision, the last for the year, will be announced on Nov 8.

Elsewhere in the region, inflation in August picked up more than expected in Philippines on higher commodity costs, as well as in Indonesia after food costs rose during the Aidilfitri festivities.

Thailand’s inflation level was steady, little changed from July and roughly in line with expectations.



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