PETALING JAYA: Inflation levels in the first quarter of this year (1Q26) are expected to be demand-driven and anticipated to remain broadly contained, just like 1Q25 levels, economists say.
Williams Business Consultancy Sdn Bhd founder and economist Geoffrey Williams said he expects the 1Q26 numbers to be “similar to last year’s”.
“The strong ringgit keeps import prices low and this should be passed on to consumers. If not, businesses are taking it in profits,” he told StarBiz.
“There should be no unusual impact from the festivals. In fact, since consumers are cautious, there might be some discounting during the sales,” Williams added.
Centre for Market Education chief executive officer Carmelo Ferlito said festive seasons, a favourable labour market and targeted assistance programmes such as the Sumbangan Asas Rahmah (Sara), may create temporary demand-side pressures.
“These are relative price effects, not the drivers of sustained inflation. Unless these factors are accompanied by a renewed acceleration in money supply growth, their impact on the general price level should be limited and short-lived.
“Given that recent years have shown discipline in monetary expansion relative to output growth, the monetary backdrop remains consistent with price stability.”
Ferlito added that demand-side impulses can only translate into persistent inflation if they are validated by monetary accommodation.
Meanwhile, TA Research in a recent report said inflation will be demand-driven, underpinned by continued Sara assistance, a firm labour market, rising household incomes and seasonal spending effects from upcoming festive periods such as Chinese New Year and Hari Raya.
“These pressures are likely to be manageable and transitory rather than broad-based. We expect inflation to remain well contained within the 1.5% to 2% range.
“Importantly, inflation is expected to remain below its long-term historical average, reinforcing the view of a relatively benign price environment.”
Against this backdrop, the research house noted that monetary policy conditions remain supportive, with the overnight policy rate maintained at 2.75%.
“This will help to preserve favourable financing conditions while safeguarding overall macroeconomic stability.
“Any policy recalibration is likely to remain data-dependent rather than pre-emptive.”
Malaysia’s inflation moderated to 1.7% in December 2024, lower than forecast, with slower increases in the costs of personal care, social protection and miscellaneous goods and services, among others.
The country’s consumer price index in December showed slower expansion as compared to 1.9% in the previous month of November, but remained higher than the 1.5% increase from a year earlier in December 2023. Analysts polled by Reuters had projected a 1.8% rate of inflation.
This brought the annual inflation rate in 2024 to 1.8%, a second consecutive year of decline since 2022.
Meanwhile, core inflation increased slower at 1.6% in December 2024 as compared to 1.8% in November 2024.
Williams said the low inflation level was within expectations.
“There were very few inflationary pressures last year and this should continue into 1Q26.”
He added that there could potentially be “two big risk factors” in the Malaysian economy.
“First, a sharp correction in the ringgit, which is too strong and could fall to RM4.20- RM4.40 or more, quite quickly.
“Secondly, domestic political stability is on the radar with continued manoeuvres among unity government parties and leaders.”
Ferlito, meanwhile, said inflationary risks would materialise if money supply growth accelerates materially above real gross domestic product growth.
“This can be due to overly accommodative monetary policy or fiscal expansion that is indirectly monetised by the banking system, or if credit expansion intensifies sharply – which would translate into rapid growth in broad money aggregates.”
Ferlito also said there could be inflationary pressures from external shocks.
“These could be commodity price spikes or exchange rate depreciation that are accommodated rather than absorbed, leading the monetary authority to validate higher prices with additional liquidity.
“Without these conditions, cost-push or seasonal factors alone are insufficient to generate generalised and persistent inflation. Without excessive monetary growth, inflationary pressures tend to be self-limiting rather than systemic.”
With upside price pressures expected to remain limited in the near term, TA Research said headline inflation is likely to hover around current levels.
“The global commodity environment remains relatively benign, supported by softer energy prices, steady supply-chain conditions and easing transportation bottlenecks, as well as firmer ringgit, which should help cap imported inflation.”
