KUALA LUMPUR: Malaysia’s inflation is expected to remain manageable in 2026, with economists maintaining their forecasts at 1.8% to 2% as targeted fuel subsidies, stable domestic demand and contained external price pressures help anchor inflation.
Bank Negara Malaysia (BNM) is also expected to keep the overnight policy rate (OPR) unchanged at 2.75% for the remainder of the year.
AmBank Group chief economist Firdaos Rosli maintained the bank’s 2026 inflation forecast at 2%, expecting price pressures to strengthen in the second half of the year and peak in the fourth quarter.
He said the June consumer price index (CPI) reading of 1.9%, slightly below AmBank’s forecast of 2%, reinforced the view that inflation remained supported by firm domestic demand, aided by the targeted fuel subsidy programme under Budi Madani.
However, he said consumption remained insufficient to trigger demand-pull inflation.
The softer June inflation reading was mainly due to slower price increases in the transport, personal care, social protection, miscellaneous goods and services, and education groups.
Meanwhile, inflation in the food and beverages group, which carries the largest weight in the CPI basket, remained unchanged at 1.4%.
Looking ahead, Firdaos expects inflation to accelerate in the second half of 2026, driven by a low base effect from the corresponding period last year, as well as the delayed pass-through of higher raw material prices and transportation costs.
He also cautioned that potential weather disruptions caused by El Nino could exert upward pressure on food prices later this year.
On external risks, Firdaos said prolonged conflict in West Asia remained the key factor that could trigger supply disruptions, although the impact on consumer prices was likely to remain limited due to the Budi Madani targeted fuel subsidy mechanism.
“Inflationary pressure is likely to be felt more by businesses than consumers amid the rise in the producer price index since March 2026,” he told Bernama.
Firdaos also expects BNM to maintain the OPR at 2.75% for the rest of the year, supported by resilient domestic economic conditions, including stronger growth prospects, a stable labour market and healthy loan growth.
On the government’s work-from-home (WFH) initiative, he said the measure may have some impact but is unlikely to meaningfully alter the inflation trajectory.
“I think the idea behind the initiative is to somewhat limit fuel consumption, rather than to manage inflation,” he said.
Meanwhile, Bank Muamalat Malaysia Bhd maintained its 2026 CPI forecast at 1.8%, expecting targeted subsidies and price control measures to continue cushioning consumers from external price pressures, particularly higher global fuel prices.
Bank Muamalat chief economist Dr Mohd Afzanizam Abdul Rashid said the continued implementation of targeted fuel subsidies, including the expansion of the MyKad-based subsidy distribution mechanism to diesel, should help contain inflationary pressures.
“We believe the policies on subsidies and price controls will remain in place, thereby insulating Malaysians from the impact of higher fuel prices,” he said.
He noted that easing fuel prices had already contributed to softer inflation in June, with the transport sub-index moderating to 2.8% from 3.8% in May.
From a monetary policy perspective, Mohd Afzanizam said the current interest rate setting remained sufficiently restrictive, with the real interest rate – measured by the OPR less inflation – standing at 0.85%, above the long-term average of 0.7%.
“On that note, we do not think BNM will change the OPR this year.
Clearly, the prevailing OPR level provides the right support to the economy, and the 25-basis-point ‘insurance’ cut in July last year has served its purpose,” he said. — Bernama
