PETALING JAYA: Elevated energy prices triggered by the war in the Middle East may fuel inflation and cloud Malaysia’s trade outlook, although the country is a net energy exporter.
MBSB Research cautioned that rising oil and gas (O&G) prices are beginning to strain supply chains and could feed into broader inflation.
It said cost pressures may spill over into core components such as transport and utilities, while higher input costs could also push up food prices.
“We forecast the moderate price increase in inflation will continue throughout the first quarter, driven by both supply and demand factors,” it said, noting that renewed cost pressures from higher energy prices could weigh on local producers.
This comes as Malaysia’s headline inflation eased to 1.4% year-on-year in February from 1.6% in January, while core inflation similarly moderated to 2% from 2.3%.
Despite the relatively benign readings, MBSB Research said food inflation remained a key concern.
It noted that while petrol price adjustments for non-citizens are partly offset by subsidised RON95 rates for citizens, upside risks stem from rising fertiliser and urea prices, exacerbated by heightened tensions in the Middle East.
“Reports indicate that over one-third of the global fertiliser trade moves through the Strait of Hormuz route.
“Therefore, this could lead to upside pressure on the inflation outlook,” it said.
Still, the research house said a stronger ringgit is providing some relief by cushioning imported inflation and easing cost pass-through to households.
MBSB Research said that while it expects a continued “accommodative” policy stance by Bank Negara Malaysia (BNM), the rising oil prices could complicate the outlook.
“A prolonged conflict remains a primary concern, as a protracted war would likely cause these inflationary pressures to become more entrenched and complicate the path for the central bank’s easing cycle.”
Meanwhile, CIMB Research said a benign pre-conflict inflation environment and fuel subsidies support its view of an unchanged overnight policy rate (OPR).
It pointed out that inflation pervasiveness in February, as measured by the number of consumer price index (CPI) items registering month-on-month increases, remained stable at around 40%.
“This suggests pre-conflict inflation dynamics appear well-anchored and provide a relatively benign starting point ahead of a more volatile global price environment,” it said.
CIMB Research noted that Malaysia is well-positioned to absorb near-term shocks, with existing fuel subsidies and the gas pricing structure for electricity generation continuing to limit the first-order pass-through of higher global energy costs.
“These buffers support our view that BNM is likely to maintain the OPR at 2.75% in the near term,” it said.
All in, CIMB Research expects headline inflation to edge towards 2% year-on-year in March, driven by fuel-related pressures, while core inflation should remain broadly stable.
Core inflation strips out food and energy components.
On the external front, CIMB Research said rising geopolitical tensions in the Middle East are beginning to reshape trade dynamics, with the risk of a near-term deterioration in the trade balance for Malaysia as higher energy prices present mixed implications.
“While higher energy prices would nominally benefit Malaysia as a net O&G exporter, the surplus largely disappears once refined petroleum products and chemicals are included,” it said.
“This suggests that a sustained rise in O&G-related prices could prove to be as much of a headwind via higher import costs as it is a tailwind for export revenues.”
Moreover, the research firm said any uplift in liquefied natural gas (LNG) and crude petroleum exports is likely to materialise with a lag due to contractual pricing structures, pointing to a possible near-term deterioration in the trade balance.
MBSB Research also cautioned that Malaysia’s export performance remains vulnerable to external volatility, driven by Middle East tensions, potential tariff hikes, and scrutiny over forced labor and structural excess capacity in manufacturing.
“Should the ongoing probes yield affirmative findings, the resulting retaliatory duties will likely keep the nation’s industrial outlook cautious throughout the year,” it said.
Nonetheless, the research firm said some upside could come from front-loading of electrical and electronics or E&E shipments ahead of phased US tariffs, supported by the ongoing global tech upcycle.
Malaysia’s trade surplus narrowed to RM16.7bil in February from RM22bil in January, as exports fell more sharply than imports.
“We expect a larger trade of crude and processed petroleum products and LNG due to the recent spike in prices of energy commodities. However, the surplus in oil trade may be limited by surging imports,” it said.
UOB Kay Hian Research warned that rising input costs and potential supply shortages of non-oil-and-gas raw materials could dampen export orders in the coming months. It pointed out that the US Section 301 tariff investigations on 60 countries, including Malaysia, add another headwind to the trade outlook.
“Pending greater clarity on these developments, we keep our 2026 full-year export growth forecast at 2.5% for now compared to the Finance Ministry’s forecast of 2.8%, with risks increasingly tilted to the downside,” it said.
