Malaysia’s inflation accelerates in June

Malaysia’s inflation accelerated to the fastest pace in more than two years in June after power tariffs were raised, adding pressure on the central bank to resume interest-rate increases to contain price gains.

Consumer prices rose 3.5 per cent from a year earlier after climbing 3.3 per cent in May, according to a report by the Putrajaya-based statistics department today. The median of 16 estimates in a Bloomberg News survey was for a 3.6 per cent gain.

Prime Minister Najib Razak’s government allowed national power distributor Tenaga Nasional Bhd to raise electricity charges for the first time in almost three years last month. Malaysia’s central bank kept borrowing costs unchanged at its July meeting and Governor Zeti Akhtar Aziz said this week policy makers have to assess the growth outlook even as the key interest rate remains “quite low.”

“With growth momentum slowing and inflation rising, this poses a policy dilemma for the central bank,” Irvin Seah, an economist at DBS Group Holdings Ltd. in Singapore, said before the report. The data “will likely serve as a reminder to policy makers that the battle against inflation is not over despite rising risks to growth.”

Bank Negara Malaysia left the overnight policy rate at 3 per cent on July 7, after raising the benchmark four times since early March 2010. Consumer prices may climb 2.5 per cent to 3.5 percent this year from 1.7 percent in 2010, the central bank said in March.

“We have to evaluate the conditions and going forward, we don’t want to have second-round effects that result in high inflation because that will erode purchasing power and that will eventually contribute to lower growth,” Zeti said in a July 18 interview. “It’s important to place priority on inflation because, unattended, it will result in damaging future growth prospects.” -- Bloomberg

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