• Malaysia’s headline inflation rose to +1.7% YoY in March (Feb: +1.4%), in line with consensus, driven mainly by higher transport costs amid rising crude oil prices.
• Core inflation came in at +2.1% YoY (Feb: +2.3%), in line with its 2021–2025 average, pointing to steady underlying demand conditions.
• We revise our Brent assumption to USD85/bbl for 2026 (previously USD65/bbl) and estimate a modest 0.2ppt increase in inflation from higher fuel prices.
• We revise our 2026 inflation forecast to +2.1% YoY (previously +1.8%), with upside risks from a potential RON95 price adjustment and broader cost passthrough.
• Barring a sharper-than-expected rise in inflation, we maintain our view that BNM will keep the OPR unchanged at 2.75% throughout 2026 to preserve growth.
Early signs of rising inflationary pressures
Malaysia’s headline inflation rose to +1.7% YoY in March (Feb: +1.4%), in line with consensus, underscoring a still-benign inflation backdrop despite the onset of Middle East tensions. On a MoM basis, inflation edged higher to +0.3% MoM (Feb: +0.2%), pointing to early signs of a gradual buildup in price pressures.
The uptick was driven mainly by transport (+1.6% YoY; Feb: -0.7%), reflecting sharply higher pump prices for RON97 (RM4.03/litre; Mar-25: RM3.33/litre) and diesel (RM4.12/litre; Mar-25: RM3.08/litre), alongside a surge in airfares (+25.8%) amid rising crude oil prices. Meanwhile, food & beverages eased to +1.1% (Feb: +1.3%), as both food-away-from-home (+2.3%; Feb: +2.4%) and food-at-home (+0.1%; Feb: +0.3%) moderated.
Underlying demand remains firm
Core inflation came in at +2.1% YoY (Feb: +2.3%), in line with its 2021–2025 average. This points to steady underlying demand conditions, consistent with our view that domestic demand will remain resilient and continue to anchor growth in 2026 despite heightened external uncertainties.
Fuel-driven cost pressures
Inflation averaged +1.6% in 1Q26, still below its 10-year average of +1.8%. However, the ongoing Middle East conflict and supply disruptions are likely to lift cost-push pressures further, mainly through higher fuel prices. Even under a de-escalation scenario, crude oil prices are expected to remain elevated in the near term, given the time required to restore damaged infrastructure and normalise production. We now revise our Brent assumption to USD85/bbl for 2026 (previously USD65/bbl; YTD: USD84/bbl).
While fuel accounts for 5.7% of the CPI basket, the fixed RON95 price at RM1.99/litre for eligible Malaysians should continue to anchor inflation and limit broad-based passthrough. Thus, the inflation impact will mainly come from unsubsidised RON97 and diesel. Based on our revised oil price assumption, we estimate a modest 0.2ppt increase in inflation from higher fuel prices.
Most consumers remain insulated, with RON95 estimated to account for at least 90% of non-commercial petrol usage. As such, higher RON97 prices are unlikely to materially affect consumption trends especially for essential goods and services. While diesel accounts for a small CPI weightage of 0.2%, limiting its direct impact on consumers, some gradual passthrough from higher business costs to consumer prices is likely.
Inflation forecast revised higher
Taking into account higher fuel price assumptions, we revise our 2026 inflation forecast to +2.1% YoY (previously +1.8%). Risks remain skewed to the upside, particularly from a potential RON95 price adjustment and broader cost passthrough. That said, targeted measures such as increase in BUDI Diesel and BUDI Agri-Komoditi subsidies should help mitigate cost pressures.
On the monetary front, the extent of spillovers from elevated crude oil prices to the broader inflation trend and the strength of domestic demand will be among the key policy considerations. Barring a sharper-than-expected rise in inflation, we maintain our view that BNM will keep the OPR unchanged at 2.75% throughout 2026 to preserve growth.
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| Currency | Buy Rates (RM) | Sell Rates (RM) |
|---|---|---|
| USD | 3.949404 | 3.981238 |
| EUR | 4.633763 | 4.638745 |
| CNY | 0.579561 | 0.580180 |
| HKD | 0.504449 | 0.508017 |
| SGD | 3.094283 | 3.116286 |