Published October 1, 2008
Inflation forecast raised to 5.9% this year

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(KUALA LUMPUR) Malaysian inflation will fall towards the end of the year from 27-year highs as the effects of a commodities price shock and a cut in fuel subsidies fade but a poll shows it will still come in higher than initially expected.
According to the poll, inflation will fall to 4.4% in 2009 compared with a prior forecast of 4.6%.

A quarterly Reuters poll conducted last week showed that the inflation forecast for 2008 had been raised to 5.9 per cent from 5.1 per cent in a July poll.
Economic growth forecasts were unchanged from the prior poll at 5.3 per cent, despite the global slowdown and lower commodity prices, a big earner for Malaysia.
According to the poll of 12 economists, inflation will fall to 4.4 per cent in 2009 compared with a prior forecast of 4.6 per cent. Growth forecasts were trimmed to 5.0 per cent for 2009 from 5.1 per cent.
That is the slowest rate of growth since 2005 when it was also 5 per cent.
'There is a big uncertainty surrounding the export outlook in the face of all the global uncertainty. Malaysia has held up reasonably well so far and the expectation is that it will continue to outperform the global economy,' said David Cohen from Action Economics.
Malaysia's outlook has also been clouded by ructions in the government as the opposition under Anwar Ibrahim, a former deputy prime minister, has mounted a challenge to the government.
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That has led to government policy flip-flops, first it slashed subsidies for fuel in order to rein in escalating government spending and then it gradually cut the price of petrol and diesel in the face of popular anger and in response to falling oil prices.
After the government cut fuel subsidies in June, petrol prices jumped by 41 per cent from RM1.72 ringgit per litre and diesel leapt by 63 per cent from RM1.58.
There were subsequent reductions on Aug 23 and Sept 25 as oil prices fell but prices are still well above May levels at RM2.45 a litre for petrol and RM2.40 for diesel.
That has made forecasting inflation more difficult.
'Inflation year-on-year will remain high unless there is a sharp drop in oil prices,' said Matt Hildebrandt at JPMorgan.
Despite the spike in inflation, Malaysia's central bank has left interest rates unchanged at 3.50 per cent for the past two-and-a-half years. It is seen staying pat as the economy slows and the threat of second-round inflation effects diminish.
Malaysia's trade balance is likely to reach US$40.0 billion this year, up from US$34.3 billion in the previous quarterly poll, after exports exceeded expectations in the last three months.
Export volumes have been strong despite commodity prices sliding since mid-year but demand is expected to fall in the coming months, economists said. -- Reuters