Economic Update
Local
Malaysia Inflation Rate - Firmer demand outlook to drive 2026 inflation    
Fri, 20-Feb-2026 07:45 am
by To Zheng Hong • Apex Research

 

  • Malaysia’s headline inflation held at +1.6% YoY in January 2026 (Dec-25: +1.6%), in line with Bloomberg consensus, as lower fuel prices were offset by a smaller electricity rebate.

  • Core inflation printed +2.3% YoY (Dec: +2.3%), holding at its highest level since October 2023, consistent with our view that resilient domestic demand will cushion against a still-fluid external backdrop in 2026.

  • Going forward, we expect a modest pickup in demand-pull price pressures, while cost-push price pressures should remain contained. 

  • We maintain our forecast for inflation to rise modestly to +1.8% YoY in 2026 (2025: +1.4%).

  • The steady January inflation print, alongside improving growth momentum, reinforces our expectation for BNM to keep the OPR at 2.75% throughout 2026. 

 

Inflation holds below 2.0%     

Malaysia’s headline inflation held steady at +1.6% YoY in January 2026 (Dec-25: +1.6%), in line with Bloomberg consensus, extending the sub-2.0% inflation backdrop of the past two years.

 

The main drag came from transport, which contracted 0.7% YoY (Dec: +0.1%), reflecting lower pump prices for RON97 (RM3.11/litre; Dec: RM3.24/litre) and diesel (RM2.89/litre; Dec: RM3.03/litre). Meanwhile, housing, water, electricity, gas & other fuels edged up to +1.2% (Dec: +0.9%), due mainly to a lower electricity rebate under the Automatic Fuel Adjustment (AFA) mechanism (4.99 sen/kWh; Dec: 6.42 sen/kWh). Food & beverages was unchanged at +1.5%, as firmer food-at-home prices were offset by easing food-away-from-home inflation.

 

Core inflation signals a gradual buildup in underlying pressures     

Core inflation printed +2.3% YoY in January (Dec: +2.3%), holding at its highest level since October 2023. While the pace remains measured, the sustained uptrend since 2H25 points to a gradual buildup in underlying price pressures. This is consistent with our view that resilient domestic demand will remain the key growth anchor in 2026, cushioning against a still-fluid external backdrop.

 

Demand-pull to drive 2026 inflation; cost pressures contained     

Going forward, we expect a modest pickup in demand-pull pressures, supported by festive-related spending, favourable labour market conditions and ongoing income-related policy support such as SARA and STR. That said, much of the upward pressure is likely to be seasonal and unlikely to cause persistent, broad-based price pressures.     

 

Meanwhile, cost-push price pressures will likely remain contained. Pass-through from policy measures such as the SST expansion, minimum wage hike and expanded employer EPF contributions for non-Malaysian employees has been muted thus far. The fixing of RON95 at RM1.99/litre for eligible Malaysians will help cushion against commodity price volatility, while a firmer ringgit should further cap imported price pressures.

 

Steady inflation outlook; OPR to stay put               

We maintain our forecast for inflation to rise modestly to +1.8% YoY in 2026 (2025: +1.4%), in line with the official projection range of 1.3–2.0% and its 10-year average of +1.8%. 

 

The steady January inflation print, alongside improving growth momentum, reinforces our expectation for BNM to keep the OPR at 2.75% throughout 2026. Barring a materially stronger growth outlook or a significant easing in external risks, there is little urgency for BNM to normalise the OPR toward 3.00% in the near term.

Sentiment: Positive
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