Consumer prices in Malaysia dropped for the second consecutive month in July along with falling raw materials, energy and primary goods prices around the world. The world recession corroded demand leading to a severe decline in commodity and services prices compared with prices we witnessed last year.

Yearly consumer prices in Malaysia fell 2.4% in July meeting forecasts compared with a previous decline by 1.4% back in June. Food prices gained 2% in July from a prior 3.4%, also communication and clothing prices declined. Transportation cost dropped 19.9%.

Deflation risks rose in different economies, as we can see in China which is leading recovery in the Asian region. Chinese consumer prices dropped 1.8% in July from a prior drop by 1.7%, while producer prices slipped 8.2% from a prior drop by 7.8%. As for Japan, consumer prices fell 1.8% in June from a prior decline by 1.1%.

However, falling consumer prices in Malaysia will allow the Central Bank to keep interest rates at the low level that would support the economy. The Central Bank of Malaysia lowered the nation's benchmark since November 2008 by 1.5% to reach the low record of 2%, hoping to revive the deteriorated economy.

The next meeting for monetary policy makers will be in August 25 and we may see the Central Bank keeping its benchmark at the low level to help the economy find its way to recovery from the worst recession since World War II.

The Central Bank governor Mr. Zeti Akhtar Aziz expected consumer prices will climb between 1.5% and 2% during 2009, while the International Monetary Fund expected inflation rate will be around 0.9% this year compared with 5.4% in 2008.

We should mention that the Malaysian economy suffered from the consequences of the financial crisis as exports slipped along with deteriorations in the industrial production, worth mentioning that the economy contracted 6.2% in the first quarter of this year.

The government in Malaysia allocated 5 billion ringgit to be spent on the infrastructure in rural areas, besides 4 billion ringgit to be spent on roads and other infrastructure projects in the state of Sabah and Sarawak. The government also spent one billion ringgit on outer ring roads.