KUALA LUMPUR (Jan 20): Economists expect modest upward pressure on inflation through 2026, pointing to what they broadly describe as a “manageable" but firmer price environment ahead.
Their assessment follows the release of Malaysia’s headline consumer price index (CPI) in December on Tuesday (Jan 20), which came in slightly above expectations at 1.6% year-on-year.
The December print — marginally above Bloomberg’s survey consensus of 1.4% — reflected higher prices for personal care items, education and selected household expenses. Full-year inflation averaged 1.4% in 2025, easing from 1.8% in 2024, according to the Department of Statistics Malaysia.
Inflation will drift higher this year, driven mainly by policy adjustments, stronger demand pressures and selected cost pass-throughs, the economists said.
MBSB Research maintained its 2026 inflation forecast at 1.8%, noting that while inflation remains mild, upward pressure is likely to build from policy changes such as the expanded Sales and Service Tax (SST) and the gradual passthrough of costs from micro, small and medium enterprises (MSMEs).
MBSB also anticipates "growing demand-pull inflation on the back of some monetary policy easing previously", although price growth is likely to be moderate across food, non-food, and core categories, with lower crude oil prices helping to contain broader cost increases.
A firmer ringgit and falling global food prices should keep imported inflation in check, although second-round effects from tax measures remain a risk, it added.
CIMB Treasury & Markets Research said the December increase was driven partly by “one-off” factors, particularly the normalisation of the information and communication (ICT) category after a year of deflation.
“We think that the current uptick in inflation is driven more by one-off increases in prices rather than sustained pressures given that price trends in the major contributors of overall inflation in 2025 have remained largely stable,” the research house said.
“We continue to expect stable inflation in 2026 in the absence of sustained pressures,” it added.
CIMB economists noted that subscription costs for audio-visual content and streaming services had surged 13.9% y-o-y, contributing significantly to December’s reading, while pressures from insurance — one of 2025’s key inflation drivers — are likely to ease in the second half of 2026 as the base effect fades.
Kenanga Research likewise expects inflation risks to "tilt modestly to the upside" in 2026, projecting inflation to average 1.9% through the year, helped by energy subsidies and imported disinflation.
“Firms outside targeted subsidy schemes face higher operating costs, while the increase in the SST rate raises the likelihood of gradual second-round effects.”
The firm added that the planned introduction of a multi-tier levy for migrant workers this year may “add further cost pressures in labour-intensive sectors”.
Still, Kenanga said ongoing Budi95 fuel subsidies and a stronger ringgit should help keep inflation “below its 30-year average of 2.3%”.
All three research houses also expect Bank Negara Malaysia to keep the Overnight Policy Rate unchanged at 2.75% for 2026, citing balanced growth-inflation dynamics and the need to preserve policy space amid external uncertainties.