PETALING JAYA: Malaysia’s inflation is expected to remain broadly contained for the rest of 2026 despite persistent geopolitical and energy market uncertainties.
Research houses largely expect targeted fuel subsidies and stable domestic demand to keep price pressures manageable, while allowing Bank Negara Malaysia (BNM) to maintain its current monetary policy stance.
TA Research, for one, maintained its 2026 inflation forecast of 2.1% to 2.6%, noting that although headline inflation has gradually picked up, underlying price pressures remain well contained.
“With inflation expected to remain manageable and economic growth showing signs of upside potential following the stronger-than-expected gross domestic product performance, we believe the current macroeconomic conditions continue to support a prolonged pause in the overnight policy rate (OPR),” the research house said.
The research house noted that headline inflation rose to 1.9% year-on-year (y-o-y) in the second quarter of financial year 2026 (2Q26) from 1.6% in the 1Q, largely due to higher global oil prices lifting transport costs and selected Consumer Price Index (CPI) components.
However, average inflation for the first half of the year (1H26) remained moderate at 1.7% y-o-y, indicating limited spillover into the broader economy.
It added that while the Producer Price Index has accelerated in recent months, the transmission into consumer prices has yet to emerge meaningfully.
Even though Brent crude oil has retreated below US$100 per barrel, renewed geopolitical tensions could still create fresh volatility in energy markets and place upward pressure on inflation.
Apex Securities Research was slightly more optimistic, lowering its 2026 inflation forecast to 2% from 2.1% after inflation averaged only 1.8% y-o-y in 1H26 despite supply disruptions linked to the Middle East conflict.
It expects targeted RON95 and diesel subsidies, together with the government’s commitment to safeguard domestic fuel supplies through year-end, to continue supporting price stability.
Brent crude prices averaging about US$86.7 per barrel so far this year also point to a relatively stable transport inflation outlook, provided oil prices do not experience another sharp spike.
Nevertheless, Apex Securities cautioned that rising producer prices could eventually filter through to consumers, while shipping and logistics costs remain vulnerable to developments around the Strait of Hormuz as well as broader geopolitical tensions.
Additionally, Hong Leong Investment Bank Research likewise retained its 2026 CPI forecast at 2%, despite warning that renewed disruptions in the Strait of Hormuz have pushed Brent crude back above US$80 per barrel.
“While the external headwinds could exacerbate the risks of pass-through to broader price levels through 2H26, Malaysia’s inflation trajectory remains insulated by both fiscal policy (Budi95 and Budi Diesel subsidies) and diversification of hydrocarbon supply,” the research house said.
Kenanga Research, which maintained its 2026 inflation forecast at 2.1%, added that risks remain tilted to the upside as energy markets continue to face uncertainty despite intermittent easing in geopolitical tensions.
It said prolonged disruptions could eventually raise logistics, transport and food costs, while adverse weather conditions – including a stronger El Nino – pose additional risks to global food inflation.
Despite these challenges, Kenanga Research expects BNM to keep the OPR unchanged at 2.75% throughout 2026, as resilient domestic demand, contained underlying inflation and relative ringgit stability should allow policymakers to look through temporary supply-driven price shocks unless they evolve into broader second-round inflation effects.
For context, Malaysia’s CPI rose 1.9% y-o-y in June 2026, easing from 2% in May and coming in below market expectations.
The moderation reflected the lower fuel prices following easing geopolitical tensions involving Iran and the United States, while inflation was unchanged on a month-on-month basis, suggesting overall price pressures remained well contained.
Meanwhile, one analyst said Malaysia’s inflation outlook remains relatively benign despite external uncertainties.
“This is thanks to targeted subsidies, which could continue to cushion the impact of higher global energy prices on consumers,” he explained, adding that current trends suggest BNM has sufficient room to maintain a steady monetary policy stance.
