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Economists see 1.68pc rise in June CPI [18-07-2012]  
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Inflation pressures have steadied in Malaysia, thanks to the drop in commodity prices.

The Consumer Price Index is expected to grow by an average 1.68 per cent year-on-year in June.

The Statistics Department will release the details today.

Bank of America Merrill Lynch economist Dr Chua Hak Bin expects inflation to hold steady, helped by the easing commodity prices.

"Fuel subsidies have kept transport costs contained, limiting the impact from volatile global oil prices on domestic fuel prices."

Citi said the 10-sen cut in RON97 prices to RM2.80 per litre beginning June helped.

"The softening external outlook has likely reduced demand pull inflation pressures, though not eliminated them completely,"it said.

It added that Bank Negara's own decomposition of inflation drivers shows that demand pull inflation has moderated at a far slower pace than head-line inflation, attesting to the resilience of domestic de-mand.

"Looking forward, while headline CPI inflation is likely to stay low at near 1.7-2 per cent in the next three to four months, the fiscal lift to domestic demand has the po-tential to add to core inflation pressures in the second half of the year."

The implementation of key mega projects under the Economic Transformation Programme may also translate into price pressures, whether directly via tight supply of construction materials, or indirectly via higher demand for labour which translates into greater pricing pressures.

But it warned that despite lower oil prices following the recent sell-off in commodities, subsidy rationalisation could still resume after the general election.

Chua said the steady inflation reading should allow Bank Negara Malaysia to stay on hold in its key benchmark interest rate.

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