Headline inflation edged up to +1.4% YoY in November (Oct: +1.3%), slightly below consensus of +1.5%, underscoring the benign inflation backdrop.
Core inflation held at a solid +2.2% YoY (Oct: +2.2%), supporting our view that domestic demand strength will carry into next year amid a volatile external environment.
We maintain our full-year 2025 inflation forecast at +1.4% YoY, in line with the +1.4% average in 11M25.
Given the muted policy pass-through from the SST expansion, we revise our 2026 inflation forecast lower to +1.8% YoY (previously +2.0%), implying only a modest pickup next year.
Sustained low inflation in November
Headline inflation edged up slightly to +1.4% YoY in November (Oct: +1.3%), but undershot Bloomberg consensus of +1.5%, underscoring the sustained benign inflation backdrop. The key highlight was alcoholic beverages & tobacco, which rose sharply (+2.4%; Oct: +0.3%) following the 10% excise duty hike on alcohol effective November. That said, the impact on headline inflation remains muted given its small CPI weightage of 0.8%.
Transport rebounded marginally (+0.2% YoY; Oct: -0.1%), partly reflecting the low base effects. Meanwhile, housing, water, electricity, gas & other fuels softened for a second straight month (+0.7%; Oct: +1.1%), as lower electricity tariffs more than offset firmer rental costs. The electricity rebate under the Automatic Fuel Adjustment (AFA) mechanism increased in November (8.91 sen/kWh; Oct: 6.50 sen/kWh), reflecting subdued energy prices.
Domestic demand remains firm
Core inflation has been on a gradual uptrend in recent months, holding at +2.2% YoY in November (Oct: +2.2%), up from +1.8% at the start of the year. While the pace remains measured and contained, core inflation has now held at its highest level since October 2023 for two consecutive months. This reinforces our view that strength in domestic demand will carry through into next year and remain the key growth anchor amid a volatile external environment.
A firm labour market, with unemployment holding at a decade-low of 3.0% in October, alongside ongoing income-related policy support for lower-income groups, should continue to underpin consumption momentum. In addition, the benign headline inflation environment should further support consumer sentiment and spending.
Muted policy pass-through
The expansion of the SST scope beginning 1 July 2025 appears to have had limited pass-through to broader price trends thus far, likely reflecting the government’s measured implementation pace and exemptions for essential goods. Another key policy measure, the Budi95 programme, which lowered the RON95 retail price to RM1.99/litre for eligible Malaysians, has further capped inflation. We estimate the RON95 price reduction to shave c.0.1ppt off headline inflation.
Electricity tariff reforms, now adjusted monthly under the Automatic Fuel Adjustment (AFA) mechanism to reflect underlying generation costs and fuel price movements, have helped contain electricity price pressures. With global commodity prices remaining subdued, we expect electricity prices to stay modest in the near term. That said, geopolitical tensions could lead to intermittent volatility in commodity prices and spillover to broader price trends.
2026 inflation forecast revised downward
With inflation averaging +1.4% YoY in 11M25, we maintain our full-year 2025 inflation forecast at +1.4%. Given the muted policy pass-through thus far, particularly from the SST expansion, we revise our 2026 inflation forecast lower to +1.8% (previously +2.0%), implying only a modest pickup next year. This would keep inflation broadly in line with the five-year historical average of +1.8% (2020–2024) and within the official projection range of 1.3-2.0%.
On the monetary front, while we continue to expect BNM to keep the OPR unchanged at 2.75% next year, the benign inflation backdrop provides policy room for BNM to ease should the growth outlook weaken amid a volatile external environment.
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| Currency | Buy Rates (RM) | Sell Rates (RM) |
|---|---|---|
| USD | 4.032101 | 4.062451 |
| EUR | 4.771456 | 4.778746 |
| CNY | 0.577351 | 0.578254 |
| HKD | 0.518501 | 0.522419 |
| SGD | 3.141818 | 3.165924 |