KUALA LUMPUR (Nikkei Markets) -- Malaysia's inflation rose in June at the slowest pace in more than three years as food prices increased at a much lower rate, while some non-food items turned cheaper after the goods and services tax was scrapped, official data Wednesday showed.
The consumer price index - Malaysia's main gauge of inflation - rose 0.8% in June from a year earlier, according to a statement from the Department of Statistics. That compares with May's 1.8% year-on-year gain. On a seasonally-adjusted basis, the index declined 1.2% from the previous month.
Economists said Bank Negara Malaysia, unfazed by June's benign inflation print which could be temporary, will likely keep the policy interest rate unchanged this year and focus on monitoring economic growth amid mounting external risks.
"We expect inflation to remain low over the coming 12 months," Capital Economics' Analyst Alex Holmes and Krystal Tan wrote in a note to clients. "In the past, BNM has not tended to respond to temporary changes in inflation by adjusting policy, and we don't think it will this time either."
The food and non-alcoholic beverages index, which carries the highest weighting at 29.5%, edged 0.8% higher from a year earlier in June. Non-food item rose 0.7% in June when compared to the same month last year. Some sub-indices, such as communications and clothing, fell in June.
Core inflation, which excludes most volatile items such as fresh food and energy prices, rose 0.1% year-on-year.
Apart from abolishing GST from Jun 1, discounted price by retailers in conjunction with festive celebrations and the implementation of price control for 22 selected items throughout June also contributed to the decline in prices, the Statistics Department said.
Since sweeping to power in May, Prime Minister Mahathir Mohamad has scrapped the goods and services tax - a highly unpopular levy but a strong government revenue source - and reintroduced fuel subsidy to follow through his pre-poll pledges to ease the voters' cost of living.
"We will have clarity on the new government's fiscal and economic policies only when Budget 2019 is unveiled in November," said Australia and New Zealand Banking Group. "We believe that the moderation in inflation... will reverse when the Sales and Service Tax is reinstated later."
Last week, Malaysia's central bank kept the benchmark policy interest rate unchanged at 3.25% but cautioned of downside risks to its outlook amid global trade tension.
Further, headline inflation is expected to be lower than initial projection of 2.5%-3.5% and may even turn negative in some months, BNM said on Jul. 11. Still, the impact is likely transitory and inflation is likely to remain low in the first half of 2019 before picking up, the central bank had said.