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Economy

Malaysia's inflation remains steady in September, lags view

KUALA LUMPUR (NewsRise) - Malaysia's consumer prices rose at a slower-than-expected pace in September, official data Friday showed as cheaper transportation and communication services helped offset impact from costlier food.

The consumer price index -- the country's primary gauge of inflation -- climbed 1.5% in September from a year earlier, the Department of Statistics said in a statement. That compares to the median 1.8% annual rise predicted by economists and August's 1.5% year-on-year increase. On a seasonally adjusted basis, the index fell 0.3% in September from August.

Economists said inflation in Malaysia is likely to remain subdued through this year thanks to low global commodity prices, and fading impact of goods and services tax will also ease domestic pricing pressure.

"Looking ahead, we expect inflation to remain on a lower glide path," said Australia & New Zealand Banking Group's economist Weiwen Ng. "We see the central bank cutting rates only if there are clear signs of weakening in household demand."

For now, there is no indication that inflation is being driven higher by demand-led factors, Ng noted. Even if headline inflation creeps up in the coming months, it is "unlikely to move too far up" in the absence of strong domestic demand, he added.

Core inflation--which excludes most volatile items such as fresh food, and price-controlled goods and services-rose 2.1% in September when compared to the same month last year.

The food and non-alcoholic beverage index, which carries the largest weighting at 30.2%, rose 3.0% year-on-year in September. Non-food prices edged up 0.8% led by pricier alcoholic drinks and tobacco items. However, transportation and communications components fell 3.5% and 2.6% respectively.

On a seasonally adjusted month-on-month basis, food and non-alcoholic beverages index slipped 0.1% in September while non-food group was down 0.3%.

"We have factored in a potential 25 basis points cut in OPR over the next six months," said United Overseas Bank' economist Julia Goh. "Barring any unexpected shocks to oil prices, we project headline inflation to average 1.7%-1.9%" in the second half, bringing full year inflation to 2.4% this year, she added.

Malaysia's central bank kept the overnight policy rate steady at 3.00% at its last meeting earlier this month. It had unexpectedly cut the interest rate by a quarter percentage point in July to help spur an economy that grew 4% in the quarter ended June 30, the slowest pace in nearly seven years.

The government forecasts Malaysia's economy to expand between 4.0% and 4.5% this year, after growing 5.0% in 2015, while inflation will stay between 2.0% and 3.0% in 2016 compared with 2.1% last year.

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