Malaysian consumer prices declined as commodity costs eased

Malaysian consumer prices declined as commodity costs eased

08-19-2009 11:12

Malaysia’s consumer prices declined for the second consecutive month in July due to moderated commodity costs in comparison with the historical levels of last year, which allowed the central bank to maintain the low interest rates in order to boost an economic improvement. The Malaysia Statistics Department reported that consumer prices fell 2.4% in comparison with last year, while they dropped 1.4% in June. In the Asian region, with countries such as Hong Kong, Singapore and China, consumer prices declined due to the worldwide slump affecting demand negatively, on which commodity costs moderated versus the record high levels of 2008. Moderating inflation enabled policy makers to reduce interest rates and expand public spending in order to boost their economies. David Cohen, director of Action Economics, stated: “Inflation should be eased adequately in order to enable Malaysia’s central bank to keep interest rates low up to the end of 2009.”

Malaysian consumer prices

The Malaysian central bank, Bank Negara Malaysia, has reduced its base interest rate 1.5% to 2% since the end of November in order to generate economic growth, while Malaysia’s economy contracted 6.2% during the first three months of this year. The next policy meeting is scheduled for August 25 when they also will announce their rate decision. Zeti Akhtar Aziz, the current governor of Bank Negara Malaysia, commented in May that the average of the consumer prices could fluctuate between 1.5 and 2% in 2009. The average inflation rate could reach a level of 0.9% in 2009 in comparison with last year’s 5.4%, according to the yearly “Article IV” assessment of Malaysia by the IMF on August 14.

Pessimistic top-line inflation

“It is improbable that inflation will be a policy concern in the following period. Currently, ingrained deflation does not appear to be a serious threat, despite the fact that Malaysia could suffer from several months of pessimistic top-line inflation, as a result of base effects,” the International Monetary Fund declared. In June, food prices climbed 3.4%, while they rose 2% in July, demonstrated by this Wednesday’s report. Clothing and communication prices also declined, while transportation costs dropped during eight months and fell 19.9% in July.