Malaysia's Aug inflation rate at 0.2 pct y/y, a 3-1/2-year low

KUALA LUMPUR, Sept 19 (Reuters) - Malaysia's consumer price index in August rose 0.2 percent from a year earlier, the slowest growth in three-and-a-half years, after the removal of a 6 percent consumption tax, government data showed on Wednesday.

The annual inflation rate was below the 0.4 percent rise forecast by a Reuters poll, and was the lowest since February 2015, when it was at 0.1 percent. In July, the rate was 0.9 percent.

Inflation has been mild following the government's withdrawal of the Goods and Services Tax (GST) in June, with the annual rate falling to a previous low of 0.8 percent that month.

In August, tranport costs rose at a slower pace amid lower domestic fuel prices, with the sectoral index rising 2.1 percent from a year earlier, compared with 6.7 percent the previous month, the Statistics Department said in a statement.

Overall inflation, however, remained muted with marginal increases posted by the indexes for housing, restaurants and hotels, education, food and non-alcoholic beverages, data from the department showed.

Costs were down across all other sectors, with the biggest declines posted by the indexes for communication, clothing and footwear, and miscellaneous goods and services.

Standard Chartered said in a note prior to the data release it did not expect Malaysia's inflation rate to continue moderating, with the new Sales and Services Tax (SST) coming into effect this month to replace the GST.

Under SST, a tax of between 5 and 10 percent will be imposed on the sale of some goods, while some services will be assessed at 6 percent.

Malaysia's central bank left its key interest rate unchanged in its Sept. 5 review, but said it expected headline inflation to edge upwards the rest of the year and through 2019.

* For more stories on Malaysia's economy, click (Reporting by Rozanna Latiff; Editing by Gopakumar Warrier)