KUALA LUMPUR (Nikkei Markets) - Malaysia's consumer prices rose at a marginally slower-than-expected pace in May as food inflation moderated, helping to cushion a surge in transport costs, official data Wednesday showed.
The consumer price index - Malaysia's main gauge of inflation - rose 1.8% in May from a year earlier, the Department of Statistics said in a statement. That compares with a median 1.9% increase in a Nikkei Markets poll and April's 1.4% year-on-year gain.
Economists said inflation pace is expected to decelerate from June after the new government scrapped an unpopular goods and services tax, which gives the central bank room to keep the benchmark overnight policy rate unchanged for the rest of 2018 to support economic growth.
"The removal of GST in June will push CPI inflation lower in coming months," said Australia and New Zealand Banking Group economist Arun Navaratna. "Given low inflation and near-term uncertainty, we expect Bank Negara Malaysia to maintain the OPR at 3.25% for the rest of the year."
The food and non-alcoholic beverages index, which carries the largest weighting at 29.5%, climbed 2.2% from a year earlier in May. The index for transport group that includes gasoline and diesel, surged 3.8% year-on-year.
On a seasonally-adjusted basis, the index gained 0.2% from the previous month. Core inflation, which excludes most volatile items such as fresh food and energy prices, rose 1.5% in May compared with the same month last year.
"We expect 2018's fuel-related inflation to moderate amid higher base effects, re-subsidization of domestic fuel price and high likelihood of a downward adjustment of global commodity prices" in the second half of the year, said MIDF Amanah Investment Bank in a note.
Globally, inflation has picked up pace as prices of oil and other commodities climbed. In Thailand, inflation has accelerated to 16-month high in May. In the European Union, inflation rose at its highest rate since April 2017.
Malaysia's economic grew 5.4% in the first quarter, decelerating from 5.9% expansion in the fourth quarter of last year and 6.2% in the third. Apart from scrapping the GST, the government has also reintroduced fuel subsidies to keep retail prices steady.
Bank Negara Malaysia has held the OPR steady at 3.25% after raising the benchmark rate by 25 basis points in January.