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Economy

Malaysia's May inflation print remains benign

Faster price rise in months ahead unlikely to sway BNM from rate cut again

Malaysia is expected to see subdued rises in consumer prices in coming months.   © Getty Images

KUALA LUMPUR (Nikkei Markets) -- Malaysia's consumer prices rose at a slower-than-expected pace in May, driven mostly by costlier food, official data on Wednesday showed.

The consumer price index -- Malaysia's main gauge of inflation -- rose 0.2% in May from a year earlier, the Department of Statistics said in a statement. That compares with a median 0.3% increase predicted in a Nikkei Markets poll and April's 0.2% year-on-year gain. The index gained 0.2% from April.

Economists said inflation will likely remain subdued even as it picks up pace in the coming months, allowing Bank Negara Malaysia to focus on economic growth amid escalating trade tensions between U.S. and China.

June's widely expected higher inflation rate is unlikely to stop BNM from cutting rates as the central bank tends to look past supply-side factors and base effects, said Barclays economist Brian Tan. "With the global economic outlook darkening, we believe BNM will cut its policy rate to 2.75%" as early as July, he said.

The central bank's monetary policy committee will meet on July 9 for a scheduled review. In May, BNM lowered the benchmark overnight policy rate for the first time in nearly three years by 25 basis points to 3%, citing downside risks to growth and subdued inflation.

Policymakers in the third-largest Southeast Asian economy are increasingly worried that heightened uncertainties, trade tensions and extended weakness in commodity-linked sectors would cloud growth prospects. Exports have been sluggish, further weighing on prospects of the trade-reliant economy.

Economic growth in the first quarter decelerated to 4.5% year-on-year from 4.7% in the previous quarter as consumers trimmed property purchases, while businesses pared investments, suggesting low demand in the economy.

Data out earlier on Wednesday showed the food and nonalcoholic beverages index, which carries the largest weighting, climbed 1.2% from a year earlier in May. Food consumption usually increases during the holy month of Ramadan in May as Muslims all over the world break their daily fast in the evening often with lavish spreads.

The index for housing, water, electricity, gas and other fuels rose 1.8% from a year earlier. The index for transport group, that includes gasoline and diesel, fell 2.5% year-on-year, the Statistics Department said.

"The festive season likely explains the increase in food prices," Australia and New Zealand Banking Group Economists Mustafa Arif and Sanjay Mathur wrote in a note to clients. "The trend in core inflation remains benign, and with slower growth momentum we expect this trend to continue."

Malaysia's annual growth rate may be in a 4.3%-4.8% range in 2019 against 4.7% in 2018, according to the central bank's forecast.

--Jason Ng

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