KUALA LUMPUR (Sept 18): Malaysia’s inflation is expected to remain manageable this year, although risks are tilted to the upside amid geopolitical tensions, commodity price volatility and potential weather-related disruptions, economists said on Friday.
Headline inflation, as measured by the consumer price index (CPI), rose 1.9% year-on-year in August, accelerating from 1.8% in July and slightly exceeding the 1.8% median estimate in a Bloomberg survey. The increase was driven by firmer price growth in transport, utilities and food.
In a note issued after the CPI announcement by the Statistics Department, MBSB Investment Bank said it is maintaining its headline inflation forecast at 2% for 2026, citing “still-contained year-to-date inflation” of 1.8%.
The research house said government price controls and targeted fuel subsidies should partly cushion pressures from elevated producer prices, volatile global energy costs, supply-chain disruptions, and higher fuel and fertiliser prices that could eventually feed through to consumer prices.
Nevertheless, MBSB flagged the risk of renewed geopolitical disruptions, which could push inflation higher through their impact on international trade and global commodity supplies.
RHB Investment Bank, which retained its headline inflation forecast at 2.1%, also expects the pass-through from higher global costs to remain gradual, supported by domestic policy measures, stable demand conditions and a “relatively stable ringgit”.
It expects the recent revision to fuel subsidy quotas from September to partly offset the impact of higher oil prices on consumer prices, keeping the impact on both headline and core inflation gradual and manageable.
However, RHB flagged several factors that could drive inflation in the short to medium term.
Higher oil prices could feed through to logistics, utilities, transportation and broader production costs, with eventual spillovers to consumer prices and headline inflation.
Further, the restoration of the Budi95 quota to 300 litres a month and the increase in the diesel quota to 400 litres from September are estimated to have a potential downside of around 0.1 percentage point to RHB’s 2026 headline inflation forecast of 2.1%, assuming 5% of eligible users benefit from the higher quotas.
The research house also remains vigilant to potential upside risks to food inflation in the coming months, as El Niño-related weather disruptions and prolonged dry conditions could adversely affect crop yields, particularly for key Asean agricultural commodities such as rice and palm oil.
Meanwhile, BIMB Securities maintained its headline inflation forecast at 1.9%, expecting price growth to remain contained amid continued fuel and food subsidies. However, it said risks remain tilted to the upside of the ongoing Middle East war that could drive higher energy, fuel and production costs.
On monetary policy, BIMB expects the overnight policy rate (OPR) to remain unchanged, citing underlying inflationary pressures and Malaysia’s ability to weather near-term external shocks.
Fuel subsidies and regulated utility prices should also help cushion the pass-through of higher global energy costs, it said.
“With Malaysia's demand-push inflation remaining stable, we opine BNM (Bank Negara Malaysia) to keep the OPR unchanged at 2.75% throughout 2026 and 2027,” said BIMB.
RHB expects 25-basis-point hike in OPR in 1H2027
While most economists do not expect BNM to raise the OPR this year or next, RHB expects the central bank to make a move in the first half of next year (1H2027).
The research house expects BNM to deliver a token 25-basis-point hike in 1H2027 which it sees “as a normalisation move towards a more neutral policy setting rather than a response to significant inflationary pressures”.
“The move would be supported by resilient growth dynamics and would provide the central bank with greater policy space to respond to future shocks, while maintaining a measured approach to monetary normalisation,” it added.