Malaysian annual inflation in June probably exceeded 6.0 percent, the central bank chief said on Wednesday, breaching a mark not seen in 26 years and reinforcing expectations of an interest rate hike.
Cheap credit has underpinned domestic demand as global growth slows, but some economists expect Malaysia to raise rates for the first time since 2006 as a recent steep rise in fuel prices pushes up inflation.
The government raised petrol prices by 41 percent last month and lifted diesel prices by 63 percent to rein in a ballooning subsidy bill.
The increase in fuel prices would drive up inflation for the rest of the year before price pressures moderate in the second half of 2009, Zeti Akhtar Aziz said.
"This adjustment (fuel price increase) would be reflected in the consumer price inflation in June, which is expected to exceed 6 percent," Zeti told a banking seminar.
The last time annual inflation was near the 6.0 percent mark was when it stood at 5.7 percent in June 1982 and 6.1 percent in May 1982.
Malaysian annual inflation, as measured by the consumer price index, was at a 22-month high of 3.8 percent in May. The central bank has said it expects inflation to average 4.2 percent this year, more than double the 2.0 percent recorded last year.
Zeti said the central bank would assess the risks of slowing economic growth and rising inflation when it holds its next regular monetary policy meeting on July 25.
"We have to evaluate the risks to inflation and we will look for signs of second-round effects and whether there are pressures for wage adjustments to take place and whether there are other secondary price increases," Zeti later told reporters.
"At the same time, we will also look at the risks to growth and whether prospects of the external environment slowing down further and whether there is deflationary impact arising from higher energy prices on the economy."
Malaysia's official interest rate is at 3.50 percent and is among the lowest policy rates in the region.
A Reuters poll of economists last month predicted that the key rate would rise to 4.00 percent by end of 2008.