PETALING JAYA: A think-tank has warned that Malaysia’s money supply growth is accelerating back toward the Covid-era pace, while producer prices are rising rapidly.
The Centre for Market Education (CME) said consumer-price inflation – although still comparatively moderate – may be starting to reflect those pressures only gradually.
The statement by CME came the same day the Statistics Department announced July’s headline inflation rate of 1.8% year-on-year (y-o-y), which was marginally lower than June’s 1.9%.
On a month-on-month (m-o-m) basis, the headline inflation in July 2026 did not register any increase.
CME said the country’s money supply, as measured by M2, expanded by 6.78% y-o-y in June 2026.
The latest pace is very close to the annual M2 growth recorded during the Covid-era monetary expansion, when the rate reached 6.91% in August 2020 and 6.75% in September 2020.
“The monetary numbers matter because they are now interacting with a renewed supply-side squeeze.
“Producer prices, which are more sensitive to changes in energy, transport, imported inputs and intermediate goods, have turned sharply upward.”
CME noted that consumer prices have not yet followed the same trajectory and that the consumer price index (CPI) inflation remained comparatively moderate.
“CME, therefore, does not claim that Malaysia is already facing a renewed inflationary spiral.
“The concern is instead forward-looking – the co-existence of a strong supply-side shock with an accelerating quantity of money creates the conditions under which temporary relative-price pressures can become more persistent and generalised,” it added.
Other economists who spoke to StarBiz also cautioned that the benign CPI reading may not yet capture potential cost pass-through pressures.
At present, economists believe government measures introduced this year, particularly during the early stages of the US-Iran conflict, have helped support consumers’ purchasing power.
Coface Asia-Pacific chief economist Bernard Aw said July’s moderation was largely driven by lower transport and fuel prices, aided by the targeted diesel subsidy, suggesting the relief was partly policy and energy-driven rather than structural.
Subsequently, UOB senior economist Julia Goh expects the government to maintain targeted fuel subsidies in the foreseeable future, while fine-tuning the mechanism to keep inflation manageable.
According to Kenanga Research, food and beverages in July saw a 1.8% rise in price – a 10-month high, driven by broad-based increases in meat, fish, fruit and vegetable prices.
Household costs, including housing, water, electricity, gas and other fuels, hit a 15-month high due to rising maintenance fees, electricity and water charges.
Transport, which rose at 1.4%, however eased to a five-month low as prices fell 1.1% m-o-m, led by lower diesel, petrol and lubricant prices amid a decrease in global crude oil prices.
Aw added that while there are pockets of firmer price pressures, particularly in food and household costs, there is insufficient evidence of persistent inflation in Malaysia’s outlook.
That said, he highlighted some underlying cost pressures are becoming more visible, and could quickly reverse some of the disinflationary benefits.
“If global energy prices rebound, transport and energy costs could feed into food, logistics and household prices, making these pressures more pronounced,” he explained.
Moody’s Analytics’ economist Denise Cheok noted that oil prices have stayed below US$90 per barrel since late May, while the ringgit has been relatively stable in recent months.
“Government subsidies on petrol and diesel are helping to keep a lid on overall inflation for now.
“However, maintaining fuel prices at such low levels will eat into government budgets the longer the conflict drags on,” she told StarBiz.
CME cited a typical lag of roughly six to nine months between monetary growth and consumer prices.
The full effect can sometimes take up to 18 months, it added.
