Malaysia Inflation Rate Rises to Highest in 13 Months

Malaysia Inflation Rate Rises to Highest in 13 Months
24 April, 2008
By Stephanie Phang

(Bloomberg) -- Malaysia's inflation accelerated to a 13-month high in March on rising food and transport costs, making it harder for the central bank to cut interest rates to spur economic growth. Consumer prices increased 2.8 percent from a year earlier, after gaining 2.7 percent in February, the Putrajaya-based Department of Statistics said today. Economists were expecting a 3 percent rise. Prices were unchanged from February.

``I don't see the central bank cutting rates,'' said Gundy Cahyadi, an economist at IDEAglobal in Singapore. ``The domestic economy looks to be weaker this year compared with last year, but with inflationary threats still rather alarming, cutting rates could worsen the situation.''

Surging global commodity prices have stoked inflation and threatened food security in Asia, causing central banks to refrain from cuts in borrowing costs that may help bolster growth as a U.S. slowdown threatens the region's exports. The U.S. is Asia's biggest overseas market.

Bank Negara Malaysia has kept its benchmark interest rate unchanged at 3.5 percent since April 2006. The central bank next meets to decide on the overnight policy rate on April 29.

Southeast Asia's third-largest economy is expected to grow 5 percent to 6 percent in 2008 after expanding 6.3 percent in 2007, Bank Negara said in its annual report last month.

``Like the rest of the world, Malaysia is experiencing inflationary pressure from food and energy prices,'' said David Cohen, director of Asian Economic Forecasting in Singapore. ``It is assumed that a slowing global economy will provide some relief on those fronts during the second half of the year.''

Food, Tobacco

Price gains last month were led by a 4.9 percent rise in food and beverages, the biggest component in the index, and a 9 percent jump in alcohol and tobacco costs from a year earlier.

Transport costs, the third-biggest component in the consumer price index, rose 0.8 percent in March from a year earlier, and housing and utility prices, the second-largest contributor, gained 1.4 percent. Prices at restaurants and hotels increased 7.1 percent, while the cost of recreation services and culture added 2.7 percent.

Crude oil touched a record $119.90 a barrel on April 22, and rice prices more than doubled in the past year to reach a high of $24.745 per 100 pounds today. Malaysia raised cigarette taxes in July and allowed six highway operators to raise toll rates this year.