KUALA LUMPUR, Jan. 24 (Xinhua) -- Malaysia's consumer price index (CPI) rose 3.5 percent year-on-year in December 2017 on higher transport and food costs, said the country's statistics department Wednesday. The rise was mainly driven by transport indices which grew 11.5 percent year-on-year, and food and non-alcoholic beverages that increased by 4.1 percent, the department said in a statement. For the period between January and December 2017, the CPI rose 3.7 percent year-on-year, mainly due to food and non-alcoholic beverages that increased by 4 percent. "The headline inflation in December translated into a month-on-month increase of 0.1 percent. With this, headline inflation averaged 3.7 percent year-on-year in 2017, close to the upper bound of the central bank's forecast range," ANZ Research said in a note Wednesday. With both external and domestic demand conditions supportive of growth and inflationary pressures set to remain, the research house expects the Malaysian central bank to increase the overnight policy rate by 25 basis points (bps) to 3.25 percent on Thursday. "We also expect another 25 bps hike at their September meeting," it said. Amid the unfavorable base effects, MIDF Research foresees the headline inflation rate to average at 2.6 percent this year. "We anticipate inflationary pressure from fuel-related items to moderate, in tandem with steady gradual rise in global commodity prices especially crude oil," it said.