Inflation hits 26-year high on costlier petrol, diesel

Inflation hits 26-year high on costlier petrol, diesel
By Rupa Damodaran
BTimes
Published: 2008/07/24

MALAYSIA'S inflation level followed regional trends in June, with the Consumer Price Index (CPI) recording a 7.7 per cent hike as a result of the petrol and diesel price adjustments during the month.The CPI soared to a 26-year high in June with the index reading 113.4 from 105.3, beating market expectations and a Business Times poll which had expected 6.74 per cent year-on-year growth.The Statistics Department said the CPI for the first half of the year increased by 3.7 per cent compared to the same period last year.The index for food and non-alcoholic beverages for June increased 10 per cent, while the index for non-food rose by 6.7 per cent.
Between January and June this year, the index for food grew by 6.1 per cent compared to non-food which grew by 2.6 per cent.Bank Islam Malaysia senior economist Azrul Azwar Ahmad Tajudin said going forward, the CPI may stay above the seven per cent year-on-year level until the first half of 2009 before trending downwards to around three per cent and below if there are no more revisions in fuel price and electricity tariffs.However, he expects a 50-50 chance of a raise in the key benchmark interest rate from 3.50 per cent as Bank Negara Malaysia may want to ascertain the knock-on effects of the review in retail fuel prices. "Should Bank Negara stand pat in its monetary policy meeting tomorrow, I expect it to commence its mild monetary tightening cycle, just to send signals to markets that it is not behind the curve in the combat against inflation."HSBC Bank economist Robert Prior Wandesforde said the headline rate must now have reached a level that the central bank simply cannot ignore, fearing second-round effects on inflationary expectations. He said the main contribution to the June CPI came from the jump in transport price inflation (from 0.9 per cent to 19.6 per cent), which added 2.9 per cent points to the headline rate. The big jump in food price inflation from 8.2 per cent to 10 per cent accelerated the growth as the component suggests that the country's food subsidies can only go some way to disguising the jump in international food commodity prices. "Food prices will also have been impacted by the strength of energy as well as demand-pull factors, bearing in mind that real consumer spending in Malaysia has been growing at a double-digit for four quarters now," he added.