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Malaysia's consumer prices fall for first time since 2009

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Malaysia's central bank is not expected to cut rates as inflation was likely to pick up in the second quarter of the year, economists said.

Kuala Lumpur

MALAYSIA'S consumer prices fell for the first time in nearly a decade in January, on the back of lower fuel costs, but economists say deflation is unlikely to be sustained and would not lead to any change in monetary policy.

The consumer price index fell 0.7 per cent in January from a year earlier, the first decline since November 2009 when it fell 0.1 per cent. A Reuters poll had forecast a drop of 0.2 per cent.

Price pressures have moderated since the government withdrew an unpopular consumption tax in June 2018 and reinstated a narrower sales and services tax (SST) three months later.

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Annual inflation in November and December 2018 was 0.2 per cent, matching the rate in August when it hit a three-and-a-half-year low.

But the country's central bank is not expected to cut rates as inflation was likely to pick up in the second quarter of the year, economists said.

January's decline in the CPI index was driven mostly by a sharp drop in retail fuel prices, after a Malaysian government decision to switch to a weekly managed float mechanism and as global oil prices fell during the month.

"This is probably just temporary and once the base effects subside, we should expect prices to revert back upwards," said Julia Goh, an economist at UOB in Kuala Lumpur.

The transport sector index fell 7.8 per cent from a year earlier in January, data from the Statistics Department showed.

The decline, however, was offset by higher prices of food, restaurants and hotels, and education. The central bank has said Malaysia does not face serious deflationary pressures.

Headline inflation, which came in at 1 percent in 2018, was likely to average higher this year, Bank Negara Malaysia said last week. "If external conditions deteriorate further, then there is room for monetary easing but that is unlikely to happen this year," said Irvin Seah, a senior economist at DBS Bank in Singapore.

Separately on Friday, Malaysia's central bank announced that the country's gross international reserves rose to US$102.3 billion as of Feb 15, up slightly from US$102.1 billion on Jan 31.

The reserves were sufficient to finance 7.3 months of retained imports, and are equivalent to the amount needed to cover short-term external debt, said Bank Negara Malaysia. REUTERS