18/02/2011 (The Star Online) - The country's inflation level is expected at 2.8% to 3% this year but there is a risk of it getting higher given the rising commodity prices globally.

RAM Holdings Bhd chief economist Dr Yeah Kim Leng said at that level, the country's inflation level would actually be within the range or maintaining its long-term average consumer price index (CPI) inflation rate of approximately 3%.

“Although the current level of inflation is manageable, the concern now is the sharp escalation of global commodity prices influenced by disruption of agricultural production that could be due to weather conditions and rising speculative activities in the international commodity market.

“It is a major challenge not only for Malaysia but also countries globally to keep inflation level in check.

“In a worst-case scenario, our inflation level could hit 4% this year but I think Bank Negara would take proactive measures by reviewing interest rates to curb inflation,” he told reporters after delivering a presentation entitled Malaysia's Transforming Socio-Economic Landscape at the 50th anniversary celebration of the Institution of Surveyors Malaysia (ISM) yesterday.

In commemoration of the anniversary, ISM produced a 192-page coffee table book highlighting its vital role and contribution towards nation building and Malaysia's economic development. It was launched by Minister of Women, Family and Community Development Datuk Seri Shahrizat Abdul Jalil.

Malaysia's inflation stood at 1.7% last year.

Prices of crude oil and crude palm oil (CPO) have been steadily increasing by 10.8% and 41.5% respectively in the past six months.

As of Wednesday, crude oil stood at US$84.99 per barrel and CPO at RM3,745 per tonne.

Recently, AP citing the World Bank reported that global food prices had hit “dangerous levels” after jumping 29% overall in the past year. It estimated that costlier corn, wheat and oil had pushed 44 million people into extreme poverty since June.

Yeah said the country's inflation shot to almost 6% in 2008 when crude oil reached over US$140 per barrel.

“But, because Malaysia has a price control mechanism and subsidies, we were able to moderate the high inflation impact then compared with countries that did not have the capacity to do so,” he said.

On the bright side, Yeah said the higher interest rates in China could prompt more capital inflows into its economy which in turn could boost its currency, and this might have positive impact on the ringgit.

“A rise in renminbi will put pressure on other Asian currencies, including Malaysia, to move in tandem that should dampen inflation,” he said.

Meanwhile, Yeah was confident that Malaysia could record more than 7% gross domestic product growth in 2010 given the expected strong performance in the fourth quarter last year.