Malaysia's Inflation Isn't Doing Much This Year, And Economists Are Actually Fine With That

Good news if you're tired of scary economic headlines: Malaysia's inflation outlook for 2026 is looking pretty chill. Economists at AmBank Group and Bank Muamalat both just held their forecasts steady 2% and 1.8%, respectively, and Bank Negara Malaysia isn't expected to touch interest rates for the rest of the year either. Everything's basically staying put.

June's numbers actually backed this up

AmBank's chief economist, Firdaos Rosli, kept his 2026 forecast right at 2%, and the actual June CPI reading 1.9%, just barely under his forecast, which confirmed rather than shook that view. His take: demand's still holding up fine, helped by the fuel subsidy program under Budi Madani, but Malaysians aren't spending aggressively enough to actually push prices up on their own.

The softer June number came down to slower price growth in transport, personal care, social protection, random miscellaneous goods, and education. Food and beverages, the biggest chunk of the whole CPI basket, just stayed flat at 1.4%. No drama there either.

But it's expected to pick up later this year.

Don't get too comfortable, though. Firdaos thinks inflation's going to climb in the second half of 2026, peaking around Q4. Part of that's just math: last year's numbers were lower, so the comparison gets tougher. Part of it's higher raw material and transport costs finally trickling down into what you actually pay.

There's also a genuine wildcard sitting out there: El Niño. If weather disruptions hit later this year, food prices could take a real hit, and that's not something anyone can plan around precisely.

What about the whole Iran situation?

Given how much oil prices have been spiking lately we're talking $90+ Brent, ships literally on fire in the Strait of Hormuz you'd think that'd be hitting Malaysians hard too. Firdaos flagged the West Asia conflict as the main external risk, but here's the thing: he expects the actual impact on what you pay at the till to stay pretty limited, thanks specifically to the Budi Madani targeted subsidy setup.

That's genuinely different from what's happening in Australia and New Zealand right now, where oil spikes are flowing straight into inflation numbers and messing with their central banks' rate decisions. Malaysia's subsidy system is basically absorbing a chunk of that shock before it ever reaches your wallet.

The catch: that cost doesn't just disappear; it just lands somewhere else. Firdaos said it plainly, "inflationary pressure is likely to be felt more by businesses than consumers," pointing to producer prices climbing since March. So businesses are eating more of the pain right now instead of passing it straight to shoppers.

Firdaos expects Bank Negara to leave the OPR at 2.75% for the rest of the year. Nothing in the data is screaming for a change in growth's solid (remember that 5.8% Q2 GDP number), the job market's steady, loans are growing healthily. No reason to touch anything.

He also cleared up something people sometimes get confused about the government's work-from-home push. It's not really an inflation tool. In his words: "I think the idea behind the initiative is to somewhat limit fuel consumption, rather than to manage inflation." So it's more about cutting down petrol use than fighting rising prices directly.

Bank Muamalat's even more relaxed about it

Bank Muamalat's chief economist Dr Mohd Afzanizam Abdul Rashid, held his own forecast even lower, at 1.8%, pointing to basically the same reasoning subsidies and price controls are doing their job, shielding consumers from pricier global fuel.

He specifically called out the MyKad-based subsidy system expanding to cover diesel now, which he thinks will help keep things contained. "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. And there's already proof it's working easing fuel prices helped cool June's numbers, with the transport sub-index dropping from 3.8% in May to 2.8%.

Mohd Afzanizam broke down the math behind why he doesn't see BNM budging either. The real interest rate (OPR minus inflation) currently sits at 0.85%, which is above the long-term average of 0.7%. Basically, policy's already tight enough there's no obvious reason to cut or hike from here.

His conclusion, pretty matter-of-fact: "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."

While other countries are dealing with genuine chaos right now, China's stock market needs emergency state intervention, Australia and New Zealand's central banks scrambling to figure out how much of their inflation is oil-driven versus real Malaysia's just sort of... coasting. Targeted subsidies are doing exactly what they're supposed to do, insulating regular people from the worst of the global mess.

There are still real risks on the table, El Niño, delayed cost pass-through, and the ongoing conflict overseas, so it's not like nothing could change. But for now, both banks are comfortable saying inflation stays in that 1.8-2% range and BNM stays put at 2.75%. Boring, in the best way possible.