The inflation level, as measured by the Consumer Price Index (CPI), eased to 3.3 per cent in August from 3.4 per cent in July.
According to the Statistics Department, the index for food and non-alcoholic beverages and non-food for the month of August 2011 showed increases of 4.6 per cent and 2.7 per cent, respectively, as compared to the same month in 2010.
The CPI rose by 3.1 per cent for the first eight months of the year to 102.8 compared with 99.7 in the same period. Compared to July, it rose by 0.2 per cent.
Commenting on the data, Bank of America Merrill Lynch economist Dr Chua Hak Bin said food prices have been kept in check by price controls.
Food accounts for a 28.9 per cent weight in the CPI basket.
During the recent Hari Raya Puasa festive season, the government put 20 food items under price control – including chicken, eggs, beef, coconut, red chillis and garlic.
Chua also expects the government to introduce measures in the upcoming 2012 Budget to help mitigate higher costs coming from food supply, housing and public transport.
He also expects Bank Negara Malaysia (BNM) to hold the Overnight Policy Rate at 3 per cent for the November monetary policy meeting, given “increased downside risks to the domestic economy”.
Industrial production contracted 0.6 per cent in July, while inflation pressures are retreating.
“We are not ruling out a surprise 25 basis points policy rate cut at the November meeting if the US and or the European Union slips into recession, or Europe’s sovereign debt crisis worsens.”
He said the bank’s US team said there is a 40 per cent chance of a US recession in the next 12 months.
“We find that Malaysia’s inflation falls in past recession episodes to varying degrees, falling by 0.6 per cent point from peak-to-trough for the milder 2001 technical recession to 1.5 per cent point for 2008 global financial crisis (and to 4.5 per cent for Asian financial crisis.”
Credit Suisse also expects BNM to be in no hurry to adjust the policy rate in a sluggish global growth scenario.
Economist Wu Kun Lung said the ringgit has also depreciated by over 5 per cent against the US dollar since early September.
“Although most of this reflected a flight to safety to the US dollar, even on a trade-weighted basis, we estimate that the ringgit depreciated by about 2.8 per cent in the past three weeks.”
Wu said it remains to be seen whether the currency will continue to depreciate.
“History suggests that it takes much bigger forex moves than we have seen so far to have a meaningful impact on Malaysian inflation,” he said when commenting on the ringgit’s impact on inflation levels.