Consumer price index (CPI) in August rose by 2.1 percent from a year ago, slighly more than analyst forecasts, to its highest level in 15 months, government data showed today.

The Statistics Department said that CPI rose by 0.4 percent in August from July on a seasonally unadjusted basis.

The annual data was higher than the median forecast of 2.0 percent in a Reuters poll of 16 economists. July's CPI rose by 1.9 percent.

Economists expect the index to remain positive but subdued for the rest of the year and the slight increase in August was due to a follow through of the government's modest fuel and food subsidy cuts implemented in July.

Bank Negara Malaysia has said before it expects inflation to remain between 2 and 2.5 percent this year.

Although inflation has been benign, rates have been hiked in three 25-basis point steps since March as part of a process of

"normalisation" following last year's emergency rate cuts.

The central bank has indicated that it finds the level of interest rates as appropriate. The next monetary policy meeting

which is the last of the year will be held on Nov. 12.

Analysts' comments

Alvin Liew, economist, Standard Chartered

"Malaysia's August CPI inflation was a tad higher than market expectations of 2 percent. While inflation remained positive and edging higher in August, it remains a benign rate in our view."

"In addition, the recent strengthening in MYR will also be helpful in mitigating partly imported inflation pressures. Taking both factors into consideration, the BNM should be still comfortable with the inflation situation and will continue to keep the overnight policy rate unchanged at 2.75% in November."

"Indeed, the uncertainty of the global recovery profile in the next few quarters and an appreciating MYR (in line with

most of the Asian currencies), should keep the central on pause and monitor external developments for a longer time before

re-starting the hiking cycle again."

Rahul Bajoria, economist, Barclays Capital

"We do not expect any major spike in inflation. We think inflation will remain manageable for Bank Negara, and they will

remain on hold on rates for the rest of 2010."

"The stronger ringgit would probably come into play in the sense that the appreciation will limit import price pressures.

The key question is that a lot of the times what happens, because of administered prices, are the prices going to be revised or not?"

"Right now we have strong ringgit, medium term, moderate crude oil prices, the pressure on government to revise electricity tariffs or fuel prices is not high. That sort of forms a risk."

- Reuters