Malaysia Consumer Price Index - Up 3.8% YoY in May as food index shot up

· Malaysia's Consumer Price Index (CPI) jumped to 3.8% in May, the strongest reading in 22-months, as the cost of food and non-alcoholic beverages shot up by 8.2% YoY. It was higher than expected.

· Following the recent fuel price hike, we may not be surprise if the inflation rate may spike up to above 6.0% in June. Inflationary pressures will be stoked further in July, when power companies introduce new electricity tariffs. Hence, we expect the CPI to remain above 5.0% for the rest of the year. Given the surprisingly higher May base, we are adjusting our CPI forecast to 5.1% from our earlier projection of 4.1% for 2008.

· The current situation may have put BNM in a difficult spot to maintain its monetary policy stance and try to hold its policy rate steady at 3.50%. However, following BNM Governor's press statement, it provides us with more reason to allocate higher probability that BNM may raise the OPR by at least 25 basis points this year.