Malaysia Inflation Eases, but Cost Pressures Keep Risks Elevated

Malaysia’s inflation eased to 1.8% in July as transport costs moderated, but food, producer prices and supply risks keep the inflation outlook tilted upward.

News Analysis

Malaysia’s headline inflation eased to 1.8% year-on-year in July 2026, from 1.9% in June, coming slightly below the 1.9% forecast from MBSB Research and the market’s 1.9%-2.0% expectation. The moderation was primarily driven by lower transport-related inflation, although firmer food prices and persistent cost pressures continue to present risks to the broader inflation outlook.

Transport and Non-Food Inflation Ease

Transport inflation declined for the third consecutive month to 1.4% year-on-year in July, from 2.8% in June, reflecting some easing in energy prices. Non-food inflation also moderated to 1.8%, compared with 2.2% previously, partly due to a sharp slowdown in insurance and financial services inflation, which fell to 1.1% from 5.7%.

Core inflation also eased to 1.8%, from 1.9% in June. Monthly core inflation remained unchanged, suggesting that underlying price pressures are relatively stable despite continued cost uncertainties. Urban inflation held at 1.8%, while rural inflation remained at 1.7%.

At state level, several areas continued to record inflation above the national average. Negeri Sembilan registered 2.5%, followed by Pahang at 2.3% and Kuala Lumpur at 2.2%.

Food Inflation Rebounds

The main source of renewed pressure came from food prices. Food inflation accelerated to 1.8% year-on-year, its highest level in 10 months, from 1.4% in June. Food-at-home inflation rose to 1.2% from 0.5%, driven by higher prices for meat, eggs and vegetables.

Globally, however, food price inflation moderated to 1.0% in July from 1.8% in June. Meat and poultry price inflation slowed significantly, while dairy prices remained in deflation. Cereals were a notable exception, with inflation accelerating to 6.8% from 2.5%.

Despite the global moderation, geopolitical tensions and supply-chain disruptions remain significant risks. The prolonged closure of the Strait of Hormuz is particularly concerning because of its importance to global fertiliser and urea trade. Any sustained disruption could increase agricultural input costs and eventually feed into consumer food prices.

PPI Signals Stronger Cost Pressures

Producer prices remain a bigger concern. Malaysia’s PPI surged 9.2% year-on-year in June, accelerating from 7.8% in May and marking the fastest annual increase since June 2022. Manufacturing costs rose 7.2%, driven by sharp increases in coke and refined petroleum products and computer, electronic and optical products.

Agricultural output prices also remained firm at 9.1%, while mining growth moderated despite strong crude petroleum extraction. The elevated PPI reading indicates that businesses continue to face substantial input-cost pressures, creating the potential for further pass-through to consumer prices.

Inflation Outlook Remains Manageable, but Risks Tilt Upward

MBSB Research maintained its 2026 headline inflation forecast at 2.0%, compared with 1.4% in 2025. While resilient domestic demand and stable core inflation provide some reassurance, higher producer prices, volatile energy markets, weaker ringgit conditions and supply-chain disruptions could push consumer prices higher.

The broader regional picture is mixed, with inflation generally moderating across Asia. US inflation also eased, while euro area inflation edged higher. For Malaysia, the recent CPI moderation reduces the immediate pressure for tighter monetary policy, supporting the case for Bank Negara Malaysia to maintain its balanced stance.

However, the inflation story is far from settled. Government price controls and fuel subsidies may cushion households, but persistent geopolitical disruptions, higher fuel and fertiliser costs and rising business expenses could generate renewed price pressures. For now, Malaysia’s inflation remains contained, but the risks are increasingly concentrated on the cost side of the economy.

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