KUALA LUMPUR (Feb 19): Malaysia’s inflation rate may see a slight uptick in 2026 as demand driven pressures gather pace, but economists expect price growth to remain manageable below its long-term average of 2%.
The consumer price index (CPI) — Malaysia's main gauge of inflation — will be shaped by the country's transition to targeted subsidies and ongoing fiscal reforms, though steady domestic demand and easing external cost pressures should keep price growth contained, according to MBSB Investment Bank Bhd.
“Price growth is expected to stay moderate as lower international energy costs and easing global supply constraints act as a vital buffer, neutralising the impact of internal policy adjustments on the broader consumption basket,” the research house said in note on Thursday, while maintaining its 1.8% inflation forecast for 2026.
Malaysia kept its headline inflation below 2% for two years, a level economists consider a stable price environment.
Research houses broadly forecast headline inflation to average between 1.8% and 2.0% in 2026, compared with 1.4% seen for 2025.
Kenanga Research opined that inflation should remain contained even as growth holds up. Fiscal transfers and credit guarantees are expected to support household demand without generating broad overheating, while targeted fuel and electricity subsidies continue to limit cost pass-through.
“The ringgit’s appreciation reinforces imported disinflation through lower fuel, food and intermediate goods prices. Upside risks stem from SST (sales and service tax) expansion, migrant levy adjustments and potential geopolitical disruptions. Still, in the absence of a commodity shock or wage spiral, inflation should remain below its long-term average,” Kenanga said.
Official data showed Malaysia’s headline inflation held steady in January 2026, supported mainly by higher prices for personal care items and education-related costs. The CPI rose 1.6% year-on-year (y-o-y) in January, matching both the median forecast of 16 economists surveyed by Bloomberg and December 2025’s pace, according to the Department of Statistics Malaysia.
Core inflation remained at 2.3% y-o-y — its highest since October 2023 — while on a month-on-month basis, consumer prices rose 0.1%, easing from December’s 0.3% increase. The food and beverages group, which carries a 29.8% weight in the overall CPI basket, rose 1.5% in January, unchanged from December. About 156 of 247 items (63.2%) recorded year-on-year price increases, marking the softest pace since August 2021. The moderation was driven by slower gains in dining out of 2.5%, while food prepared at home rose 0.6%.
Moving forward, economists broadly noted that Malaysia remains sensitive to global food price volatility and exchange-rate shifts, the research house noted. However, a stronger ringgit and falling global food prices have improved the outlook for imported inflation, moderating cost pass-through to households.
While the targeted petrol price hike for non-citizens is offset by lower subsidised RON95 prices, food inflation remains a risk amid adverse weather conditions that could disrupt local agricultural production.
OPR likely unchanged at 2.75% throughout 2026
Economists are largely aligned that Bank Negara Malaysia (BNM) is likely to keep the overnight policy rate (OPR) unchanged at 2.75% throughout 2026.
BIMB Securities said with strong domestic demand, a stable labour market, and resilient gross domestic product growth mean there is no immediate need to change monetary policy. Instead, BNM is likely to focus on adjusting the statutory reserve requirement (SRR) rather than the OPR. In May 2025, BNM lowered the SRR ratio by 100 basis points, from 2% to 1%. The reduction in the SRR injected RM19 billion in permanent liquidity into the banking system.
RHB Research said while there is no immediate pressure for tightening, it noted that a rate hike cannot be completely ruled out if inflation proves higher and more volatile than expected.