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NEWS UPDATES Asean Affairs                      19  August 2011

Inflation in Malaysian economy

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When economic growth slows, demand for commodities and energy will be lower as people consume less and businesses do not stock up.

This would be the usual scenario but in today's world, rising wealth and infrastructure development from emerging economies could mean inflation would likely not fall by much as underlying demand would still support prices.

Economists have mostly taken the view that global inflation peaked in the middle of the year or would be peaking again in the next month or two going by the downward pressure affecting global commodity and energy markets.

Affin Investment Bank Bhd economist Alan Tan said inflation would continue to put pressure on the Malaysian economy until the end of the third quarter.

“I'm in the camp that says inflation will remain elevated in the months ahead. It has gone up from 3. 4 percent last month to 3.5 percent this month,” he said, adding that there could be some moderation in prices in the fourth quarter. Inflation moderated slightly to 3.4 percent in July year-on-year compared with 3.5 percent in June.

However, the relentless march of spot gold prices (which has risen nearly 27 percent year-to-date to reach above US$1,800 per ounce) tells a different story. Additionally, inflation in China and India remains elevated.

Was this a flight to safety amidst volatility or a hedge against inflation or both? If what economists said were true, then inflation would be gradually coming down but the World Bank in a recent report said global food prices in July remained significantly higher than their levels in the same month last year.

At the briefing on the second quarter economic performance on Wednesday, Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz said inflation as measured by the consumer price index would remain within the 2.5 percent to 3.5 percent target.

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It is commonplace in journalism to write two types of articles at the transition point between the year that has passed and the New Year. As this writer qualifies as an “old hand” in observing Thailand with a track record dating back 14 years, it is time take a shot at what may unfold in Thailand in 2011.

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