KUALA LUMPUR - MALAYSIA'S inflation eased slightly to 8.2 per cent in September after a series of retail fuel price cuts which saw the transportation index expand at a slower pace, government data showed.

'Among the contributing factors to this decline is the reduction in the price of petrol and diesel announced by the government', the statistics department said in a statement late on Friday.

Inflation jumped to a 26-year high in August at 8.5 per cent, after reaching 8.3 per cent in July, driven by the high cost of food and fuel following a steep 41 per cent fuel price hike in June.

The department said the cost of food and non-alcoholic drinks rose 12.3 per cent in September compared to the same period in 2007.

Transportation prices remained high, increasing 18.1 per cent from last year but on a monthly basis the index contracted by 3.0 per cent from August after the slight fall in fuel prices.

'I hope this trend will continue that shows that in the months to come inflation or rises in prices of goods will not be a problem to the country', said Domestic Trade and Consumer Affairs Minister Shahrir Samad, according to state Bernama news agency.

Retail fuel prices have been cut three times since the hike and Mr Shahrir said another price cut will be announced at the end of the month, following the trend in falling global fuel prices.

Malaysia's central bank said that 'inflation has now peaked and is expected to moderate into 2009', after announcing that its overnight policy rate will remain unchanged at 3.5 per cent on Friday.

Bank Negara said that monetary action will only be taken if there was a risk that economic growth could worsen.

It said lower cost pressures and moderating domestic demand are expected to reduce inflation in 2009 but slower global growth and the decline in commodity prices will affect the performance of the export sector and overall economic growth in 2009.

The government is expected to announce next month a downward revision of its 2009 growth forecast from its initial target of 5.4 per cent amid the global financial crisis.

It expects the economy to grow at 5.7 per cent this year. -- AFP