PETALING JAYA: Malaysia’s inflation is expected to remain broadly contained through the rest of 2026 despite lingering geopolitical uncertainties.
This is mainly attributable to easing global oil prices and domestic fuel subsidy measures that help temper price pressures, according to Hong Leong Investment Bank (HLIB) Research and TA Research.
HLIB Research said the recent de-escalation of tensions in the Middle East had reduced immediate upside risks to inflation after crude oil prices retreated from earlier highs.
“The recent announcement of the US-Iran deal has significantly tamed the Brent crude oil benchmark.”
It said Brent crude oil prices averaged at US$80.20 per barrel post-announcement of the deal, compared with US$100.84 before the announcement.
HLIB Research added that inflation risks would remain limited in the near term due to the government’s decision to retain subsidised RON95 petrol prices.
“In the near term, upside risks to inflation should remain capped by the preservation of subsidised RON95 prices,” it said.
Nevertheless, HLIB Research cautioned that uncertainty surrounding the geopolitical outlook and the time required for global energy supply chains to fully recover warranted a cautious stance.
As such, it maintained its 2026 consumer price index (CPI) growth forecast at 2% for now. The 2025 CPI rose 1.4%.
TA Research similarly noted that crude oil prices had surged above US$100 per barrel between mid-March and May due to concerns over supply disruptions linked to the conflict involving Iran and the United States. However, prices have since moderated following the signing of a preliminary peace agreement between the two countries.
It said the agreement has helped alleviate fears of a major supply shock by supporting the gradual restoration of shipping activities through the Strait of Hormuz.
Still, TA Research expects oil markets to remain cautious despite the improving outlook.
“While the agreement represents a positive step towards regional stability, a full normalisation of global oil supply conditions is likely to take time.”
It noted that shipping operators, insurers and energy traders are likely to remain wary until security conditions stabilise further and commercial traffic through the key waterway returns to normal.
“Although downside risks to oil prices have increased, Brent crude is likely to remain above its historical average in the near term amid lingering geopolitical uncertainties and ongoing negotiations towards a broader peace settlement,” it said, noting that Brent crude recently closed at US$80.57 per barrel while its year-to-date average remained elevated at about US$88 per barrel.
On the domestic front, TA Research said the Finance Ministry’s decision to lower the subsidised diesel price for Malaysians to RM2.10 per litre from July, from RM2.15 currently, could ease transportation and logistics costs.
“The lower diesel price is expected to provide some relief to transportation and logistics costs, which could contribute to a more moderate inflation trajectory in the coming months, particularly through lower transportation and distribution costs.”
However, it added that the eventual impact on inflation would depend on implementation details, including subsidy mechanisms, eligibility requirements and consumption quotas.
Overall, TA Research maintained its assumption that Brent crude prices would average between US$80 and US$100 per barrel for the remainder of 2026.
“Under this scenario, we expect inflation to average between 2.1% and 2.6% this year, compared with Bank Negara Malaysia’s forecast range of 1.5% to 2.5%.”
For context, Malaysia’s CPI rose 2% year-on-year in May 2026, accelerating from 1.9% in April and marking the fastest pace of inflation in almost two years.
The increase was mainly driven by faster food price growth and the lingering effects of the earlier oil price shock, while higher fuel costs continued to exert pressure on transport-related prices and other consumer categories.
On a month-on-month basis, inflation edged up 0.1%, indicating that supply-side cost pass-through remained gradual but ongoing.
Meanwhile, an analyst noted that while the recent pullback in oil prices has reduced the likelihood of a sharp acceleration in consumer prices, inflation risks have not disappeared entirely.
“Global energy markets remained sensitive to geopolitical developments, and any renewed disruption could quickly feed into domestic cost pressures,” he highlighted.
“Malaysia’s inflation outlook appears manageable for now, supported by fuel subsidy measures and moderating commodity prices.”
