Malaysia: Increasing inflation raises likelihood of further policy tightening
March 24, 2011
In February, consumer prices increased 0.5% over the previous month, which was a notch below the 0.6% rise tallied in January. The increase was led by rising food prices as well as restaurants and hotels, while transport prices remain more subdued. Owing to the pronounced price increase, annual inflation jumped from 2.4% in January to 2.9%, which exceeded market expectations of 2.7%. In addition, annual average inflation maintained the upward trend in place since May 2010, rising from 1.8% in January to 1.9% in February. Most analysts expect the upward trend to continue in the coming months in the wake of rising food and energy prices. Despite rising inflation pressures Central Bank Governor Zeti Akhtar Aziz asked the government to continue withdrawing its subsidies for fuel and food. The ensuing price increases for food and gasoline, would probably require the Central Bank to again increase interest rates, which have been on hold since July last year.