Malaysia’s inflation outlook steady at 1.5–2.5 pc, BNM stresses external pressures remain manageable

KUALA LUMPUR, Aug 14 — Malaysia’s headline inflation rose to 1.9 per cent in the second quarter of 2026 from 1.6 per cent in the preceding quarter, while core inflation moderated to 1.9 per cent from 2.1 per cent, Bank Negara Malaysia (BNM) said today.

BNM Governor Datuk Seri Abdul Rasheed Ghaffour said higher input costs had so far seen limited pass through to consumer prices.

He noted that almost 80 per cent of firms are facing higher cost pressures, but only about half indicated they may pass these costs on to consumers, as demand remains weak.

The central bank’s figures showed producer cost pressures were concentrated at the upstream stage, with crude materials prices rising 27.5 per cent and intermediate inputs 3.7 per cent, while finished goods prices increased 1.4 per cent.

Headline inflation is projected to average 1.5 to 2.5 per cent in 2026, with BNM saying the overall impact of external cost pressures is expected to remain contained.

Expanding further, Abdul Rasheed said the increase in headline inflation mainly reflected higher external cost pressures following the conflict in the Middle East.

Fuel prices, particularly RON97 and diesel, increased during the quarter, leading to fuel inflation of 5 per cent, compared with minus 1.5 per cent in the first quarter.

He added that producer cost pressures remained concentrated at the upstream stage, with limited pass-through to later stages of production and broader consumer prices during the quarter.

“Core inflation moderated mainly due to softer inflation in jewellery and watches, which eased to 23.7 per cent from 39.1 per cent, and rent, which moderated to 1.4 per cent from 1.6 per cent.

“Inflation pervasiveness, measured by the share of Consumer Price Index items registering monthly price increases, rose to 45.5 per cent from 38.3 per cent in the first quarter, close to its historical average of 45.6 per cent,” he said. 

According to Abdul Rasheed, the increase was driven mainly by a sharp rise in April before moderating in May and June.

He also said high-frequency indicators showed food prices had rebounded from earlier declines, returning close to pre-conflict levels.

Additionally, Abdul Rasheed said the impact of the Middle East conflict on inflation remained an area that required close monitoring.

“The Middle East conflict is still very nascent, and we need to be listening in terms of what could be the impact on the commodity prices, what could be the impact to prices, and how this would then affect prices in Malaysia,” he said.

As of early August, inflation outcomes and high-frequency indicators remained broadly in line with the projections, he said.

However, the outlook remains subject to upside risks, mainly from external uncertainties.

He reminded that further escalation of the Middle East conflict could push global commodity prices higher, while larger and more persistent input cost pressures could arise from broader supply chain disruptions, including adverse weather conditions.

At the same time, softer global demand could weigh on commodity prices and inflation, while further improvements in global supply conditions could ease cost pressures.

“Overall, inflation is projected to remain moderate, while the external cost pressures may place some upward pressure on prices,” Abdul Rasheed said.

He said stable domestic demand conditions, together with targeted government measures such as fuel subsidies, were expected to continue limiting the pass-through to consumer prices.

Meanwhile, Abdul Rasheed said the Monetary Policy Committee maintained the Overnight Policy Rate (OPR) at 2.75 per cent at its July 2026 meeting, saying the current monetary policy stance remained appropriate and consistent with the outlook for continued price stability and sustainable economic growth.

Asked whether the political cycle could make BNM reluctant to raise the OPR even if economic data and key indicators pointed to a need to do so, Abdul Rasheed said the MPC would remain guided by data and its price stability objective.

He said BNM would continue to monitor developments that could affect the inflation outlook, including whether price increases were becoming sticky and persistent.