Malaysia's inflation surges to 7.7 percent in June after fuel price hike, hits 27-year high

Thu, Jul 24 02:34 PM

KUALA LUMPUR, Malaysia (AP) _ Malaysia's annual inflation rate spiraled to a 27-year high in June after a fuel price hike sent the cost of food and transport soaring, the government said. Consumer prices in June rose 7.7 percent compared with the same month in 2007, more than double the 3.8 percent annual inflation rate recorded in May, according to data released late Wednesday by the Statistics Department.

Food and nonalcoholic beverages, which account for 31 percent of the price index, spiked 10 percent from a year ago. Transport expenditure surged 19.6 percent; alcoholic beverages and tobacco costs climbed 9.2 percent.

"The main reason for this increase is due to the substantial rise in the price of petrol and diesel announced by the government," the statistics department said. The inflation figures underscore growing public frustrations over the higher cost of living after the government raised gasoline prices by 41 percent and diesel prices by 63 percent in early June to curb a runaway subsidy bill.

Domestic Trade and Consumer Affairs Minister Shahrir Samad said June's inflation rate was the highest since April 1981, when consumer prices rose 10.8 percent. Shahrir said annual inflation would likely remain above 7 percent in July because the government raised electricity tariffs by 18 percent for households and an average of 26 percent for commercial and industry users.

Analysts said the sharper-than-expected surge in consumer prices and the regional trend of tightening interest rates add new pressure for Malaysia's central bank to raise rates at its monetary policy meeting Friday. "The current scenario may have tilted Bank Negara's focus toward combating inflation," Kenanga Investment Bank said in a report.

It predicted Bank Negara Malaysia will raise its key overnight policy rate used by banks to set lending rates to 4 percent over the next six months. The rate has been unchanged at 3.5 percent since 2006.

Bank Negara Governor Zeti Akhtar Aziz was noncommittal Thursday, saying the central bank would have to consider factors such as whether inflation would increase and hurt economic growth in its rate decision. "We're going to do what is in the best interest of the country," Zeti told reporters.

The government has said inflation may cross 5 percent in 2008, but it has pledged not to further raise fuel prices this year. Inflation was around 2 percent last year.

Malaysia's consumer price index is calculated based on retail prices of 460 items in nearly 25,000 outlets nationwide.

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