Sunday, July 12

Task of managing inflation to become more challenging

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KUALA LUMPUR: The task of managing inflation could become more challenging as the same domestic and external shocks occurring today have increasingly different implications for inflation when they occur in the future, said Bank Negara Malaysia (BNM).

This was based on several factors, including that drivers of inflation would continue to evolve alongside structural changes in the economy as Malaysia transitioned to a high value-added and higher income economy.

“The inflation process could also change as a result of government policies such as the introduction of goods and services tax, minimum wages and the reduction of subsidies,” BNM said in its Annual Report 2010 released here yesterday.

BNM said domestic inflation might be more affected by external forces, especially global commodity prices, as the price mechanism became more market-driven.

Supply shocks could become more persistent and not transitory as global demand for resources and food continued to rise due to population growth, rapid urbanisation and supply constraints, it said. — Bernama