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NEWS UPDATES Asean Affairs             15  July 2011

Malaysia's inflation peaked in June

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The average wage-earner may find this hard to believe but inflation is seen peaking in June at 3.8 percent from a year ago after the recent hikes on electricity tariff and gas prices.

Malaysian Institute of Economic Research (Mier) executive director Dr Zakariah Abdul Rashid said in a briefing yesterday that the consumer price index (CPI), having risen to a two-year high in May, would likely peak in June.

He said inflation, which had been supported by higher food prices, would be more broad-based going forward and that the gross domestic product (GDP) growth for this year remained unchanged at 5.2 percent.

GDP for the first quarter expanded by 4.6 percent compared to a year ago and economists expect growth to be slower in the second quarter as exports continued to drop.

A Mier report on the Malaysian Economic Outlook for the second quarter noted that inflation would probably average at 3.5 percent in the second half of the year "with upside risks from indirect second-round effects" stemming from the tariff and gas price hikes with inflation averaging 3.3 percent next year.

The report said there would be at least one more 25-basis point hike in the overnight policy rate (OPR) this year due to inflationary pressure and another 25-basis point hike next year, bringing the OPR to 3.5 percent.

The Statistics Department would be releasing June's CPI data next Wednesday and economists in a Bloomberg survey expect inflation to gain a median 3.6 percent year-on-year.

Maybank Investment Bank Bhd chief economist Suhaimi Ilias said in a report dated June 27 that price pressures were broadening.

He had earlier revised full-year inflation to 3.4 percent from 3 percent previously and 3.3 percent for next year after factoring in the price increases for food, fuel, energy and electricity.

For the rest of the year, Suhaimi expects the monthly inflation rate to surge to 4 percent year-on-year in June-July, before easing to 3.7 percent-3.8 percent year-on-year in August to November and 3.5 percent year-on-year by December.

Inflation has steadily gained ground in the country and the region where policymakers have hiked benchmark interest rates after food prices rose due to more expensive agricultural commodities and energy.

Inflation last peaked in July 2008 when oil prices jumped to more than US$147 per barrel. Prices then fell as the financial and economic crises enveloped the global economy, crimping demand.

However, prices started to rise again after dropping to a low in July 2009 as the local economy recovered, largely boosted by RM67bil in stimulus measures.

Meanwhile, Deputy Finance Minister Datuk Donald Lim told reporters that the Government's GDP target growth of between 5.5 percent and 6 percent this year stayed unchanged.

He said the "slower growth in the first half of the year was partly due to a drop in government expenditure" where certain ministries had spent only 10 percent of their budgeted allocation in the six months to June.


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