Malaysia inflation rate could hit 9-year high of 5% on petrol and diesel price hikes

This article belongs to the Malaysia inflation watch story arc.

bloomberg.com :

Malaysia's ringgit fell for a second day on concern a weakening currency and quickening inflation will diminish the appeal of the nation's debt. The ringgit has dropped almost 2% against the dollar in the past 3 months. The government last week raised prices of diesel and gasoline by as much as 63% to prevent the budget deficit from widening, while the central bank said inflation may reach a 9-year high of 5% this month [Jun 2008]. The April inflation rate had hit a 14-month high of 3%. Malaysia's central bank has held its overnight benchmark policy rate at 3.5% since April 2006. "The markets are aggressively pricing in interest-rate hike expectations," said Irene Cheung, a currency strategist at ABN Amro Bank in Singapore.

- Compared to Singapore, Malaysia's CPI inflation rate at 3% has been relatively benign, but as we now know, it had been due to the government's heavy subsidies of petrol and diesel prices even as crude oil prices continued to set all-time records. Now, with the elimination of fuel subsidies and switching over to full market pricing, the Malaysian inflation rate will rise substantially and could even start to approach Singapore's inflation rate, which had hit a 26-year high of 7.5% in April 2008. The economists may be in for a surprise.

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