PETALING JAYA: Energy subsidies and a stronger ringgit continue to anchor prices as Malaysia remains more resilient than many regional peers, but the escalation of the Middle East conflict complicates the outlook.
Kenanga Investment Bank Bhd (Kenanga IB) said Malaysia’s status as a net energy exporter provides a fiscal buffer through higher dividends from Petronas (Petroliam Nasional Bhd) and export revenues.
However, global commodity shocks will still pass through via cost-push inflation.
Kenanga IB said disruptions in the Strait of Hormuz threaten not only oil flows but also fertiliser supplies, both of which are critical for agriculture.
“Higher input costs are likely to lift prices for staples such as rice, poultry and vegetables.
“While fiscal transfers continue to support demand, rising transport and farming costs will erode affordability. If producers pass on these costs to consumers, private consumption, Malaysia’s main growth engine, may soften.
“This has led us to raise its 2026 inflation forecast to 2.1% from 1.9%,“ Kenanga IB said in a note.
Malaysia’s headline inflation eased to a three-month low of 1.4% year-on-year (YoY) in February, largely due to base effects, in line with Kenanga IB’s forecast but below the 1.6% consensus, while on a monthly basis, prices rose 0.22% from 0.15% in January, amid continued increases in housing and miscellaneous expenses.
Core inflation softened to a six-month low of 2% YoY in February from 2.3% in January, with monthly core inflation moderating to 0.1% from 0.4% in January, as a rebound in transport costs was more than offset by broad-based easing across other components.
Monthly price gains were driven by higher rents, jewellery prices and domestic airfares, partly offset by softer food prices.
Housing, water, electricity, gas and other fuels inflation edged down to 1.1% YoY from 1.2% in January, despite a 0.7% MoM increase, reflecting higher rents, electricity costs and maintenance charges.
Meanwhile, insurance, financial services, and miscellaneous goods and services rose to a record 6.9% YoY in February from 6.6% in January, driven by a surge in jewellery and watch prices amid elevated gold and silver prices.
Transport remained subdued at -0.7% YoY but rebounded 0.2% MoM, driven by higher domestic airfares and diesel prices.
Food and beverages eased to 1.3% YoY, its lowest since August 2021, with flat monthly prices as declines in food-at-home costs offset earlier gains, against a backdrop of uneven global inflation momentum and likely upward pressure in March from energy shocks.
Kenanga IB said Bank Negara Malaysia (BNM) is therefore likely to keep the Overnight Policy Rate at 2.75%.
“Energy export revenues provide near-term breathing space, but the central bank faces a tougher trade-off as inflation pressures rise while global growth moderates.
“BNM must balance containing inflation expectations with preserving domestic activity.
“We expect the central bank to tolerate moderately higher headline inflation, to safeguard growth, while a firmer ringgit helps cushion imported cost pressures.
“In this environment, the policy rate will act mainly as a stabiliser against external volatility,“ Kenanga IB said.
