Malaysia's annual inflation rate jumped to a 26-year high of 7.7 percent in June due to a substantial rise in fuel prices, according to official data released today.

Nor Mohamed Yakcop, second finance minister, had already said that a 41-percent hike in subsidised fuel prices last month was set to boost inflation in June and July.

The figure came as something of a surprise as economists had predicted June inflation of 6.6 percent.

Economists now expect the central bank to raise interest rates by 25 basis points at the end of July to counter the jump in inflation.

Transport prices increase 20%

Malaysia's key interest rate now stands at 3.50 percent.

Transport prices rose 19.6 percent in June as compared with a year ago, while food and non-alcoholic beverages rose 10 percent.

In the first half of the year, consumer prices rose 3.7 percent from the same period the year before.

Prime Minister Abdullah Ahmad Badawi last month announced a deeply unpopular 41 percent increase in petrol prices to cut the country's subsidies bill, which would have reached 17 billion dollars this year.

- AFP