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Power, gas price rises expected to push up CP [20-07-2011]  
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The recent increase in electricity and gas prices are expected to push up inflation further in Malaysia, reinforcing a policy dilemma for Bank Negara Malaysia (BNM).



Although BNM has kept the key interest rate at 3 per cent, inflation is running ahead of that. This could discourage people from saving their money as returns from deposits would not be enough to tackle inflation.

Economists polled by Business Times expect an average growth of 3.57 per cent in the Consumer Price Index (CPI) in June.

The Statistics Department is expected to release the CPI data late today.

BNM has maintained the Overnight Policy Rate at 3 per cent in the previous policy meeting to support economic growth, given the weaker global outlook particularly in developed economies.


DBS Bank's economist Irvin Seah said June's CPI will serve as a reminder to policymakers that the battle against inflation is not over despite rising risks to economic growth.

"A slowing growth momentum versus rising inflation poses a policy dilemma for the central bank."

US bank Citi said the June inflation pressure comes after Petronas raised the price of natural gas for power generation by an average of around 28 per cent to RM13.70 per mmBtu from RM10.70.

This has pushed up electricity prices up by as much as 2.23 sen per kWh or 7.12 per cent on an average.

A diesel super-subsidy was also abolished on June 1, forcing drivers of commercial vehicles to pay RM1.80 per litre of Euro 2 grade diesel compared with RM1.481 before, which has resulted in higher food prices as well as other goods.

TA Research economist Patricia Oh expects overall prices to stay in check for the rest of the year, with world crude oil price stabilising in recent months.


Source:BUSINESS TIMES
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