• Headline inflation eased to +1.8% YoY in September (Aug: +1.9%), driven by slower price gains in electricity and food.
• Core inflation was steady at +1.7% YoY, pointing to subdued underlying price pressures.
• Targeted fuel subsidies should cushion the impact of higher energy prices on inflation.
• We revise our 2026 inflation forecast to +1.8% YoY (previously +2.0%), within the official projection range of 1.5-2.5%.
• We maintain our 2027 inflation forecast at +2.0% YoY (MoF: 1.8-2.8%) with upside risks.
Subdued inflation in September
Malaysia's headline inflation eased to +1.8% YoY in September (Aug: +1.9%), marginally below consensus of +1.9%. On a month-on-month basis, inflation rose by a modest +0.1% MoM (Aug: +0.3%), pointing to limited pass-through of higher commodity prices and business costs to consumer prices at this juncture.
The moderation was driven mainly by housing, water, electricity, gas & other fuels (+1.4% YoY; Aug: +2.1%), reflecting a lower electricity surcharge under the Automatic Fuel Adjustment (AFA) mechanism (3.67 sen/kWh; Aug: 3.80 sen/kWh). The higher household electricity subsidy threshold of 800 kWh effective September also helped cushion electricity costs. Food & beverages inflation eased to +1.8% YoY (Aug: +1.9%), driven by slower price gains in food at home (+1.2%; Aug: +1.4%).
Meanwhile, transport inflation accelerated to +2.5% YoY (Aug: +2.0%), reflecting higher pump prices for RON95 (RM4.16/litre; Aug: RM3.75/litre), RON97 (RM4.64/litre; Aug: RM4.28/litre) and diesel (RM5.05/litre; Aug: RM4.60/litre). For context, Brent crude breached USD100/bbl in September for the first time since late July amid renewed escalation in US-Iran tensions and disruptions to Saudi Arabia's oil infrastructure.
Underlying price pressures remain subdued
Core inflation remained steady at +1.7% YoY (Aug: +1.7%), below its 2021-2025 average of +2.1%. The persistently low core inflation rate points to subdued underlying price pressures, suggesting limited demand side inflationary pressure. On a month-on-month basis, core inflation rose +0.3% MoM (Aug: +0.3%).
Lower forecast this year; upside risks in 2027
With 9M26 inflation averaging just +1.8% YoY, we revise our full-year 2026 inflation forecast to +1.8% (previously +2.0%), reflecting limited buildup in consumer price pressures despite global supply disruptions and elevated commodity prices. Our revised forecast remains within the official projection range of 1.5-2.5%.
For 2027, we maintain our inflation forecast at +2.0% YoY (MoF: 1.8-2.8%), although risks remain tilted to the upside. Key factors to watch include i) volatility in crude oil prices amid prolonged geopolitical tensions; ii) pass-through of elevated business costs to consumer prices; iii) El Niño-related risks to food prices; and iv) demand-side pressures from Budget 2027 measures including cash assistance, higher minimum wages and selective tax cuts. Barring a material overshoot in Brent price above our assumption of USD85/bbl for 2027, we expect inflation to remain broadly stable. Targeted fuel subsidies should continue to cushion the impact of higher energy prices. While the minimum wage increase to RM2,000 could add to business costs, we expect the pass-through to consumer prices to be gradual and modest, consistent with the limited spillover from elevated producer price inflation observed thus far.
OPR hike in 2027
Overall, we expect BNM to keep the OPR at 2.75% at its upcoming MPC meeting on 5 November. Further out, the steady inflation outlook and positive domestic growth prospects support our expectation for BNM to normalise monetary policy, raising the OPR by 25 bps to 3.00% in 2027.
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| Currency | Buy Rates (RM) | Sell Rates (RM) |
|---|---|---|
| USD | 4.066848 | 4.098389 |
| EUR | 4.573345 | 4.576847 |
| CNY | 0.610768 | 0.611237 |
| HKD | 0.518416 | 0.521927 |
| SGD | 3.179278 | 3.200904 |