KUALA LUMPUR, Jan. 22 (Xinhua) -- Malaysia's inflation is expected to edge higher in 2026 but remain contained, with economists pointing to subsidy support, a firmer ringgit and limited demand pressures as factors capping price growth.
UOB said in a recent note that it expects a gradual upward trajectory in inflation, with the full-year average inflation forecast at 2 percent, compared to the government's estimation of 1.3 percent to 2 percent.
"While this marks an increase from the 1.4 percent in 2025, headline inflation is projected to remain contained," said the research house.
According to UOB, this outlook is supported by the ongoing implementation of the RON95 fuel subsidy (BUDI95), limited pass-through effects from domestic fiscal reforms and global tariff adjustments, the absence of significant demand-driven pressures, and a firmer ringgit.
Malaysia's headline inflation unexpectedly accelerated to an 11-month high of 1.6 percent year-on-year in December. This brought full-year inflation to an average of 1.4 percent in 2025, the lowest since 2020.
Meanwhile, Kenanga Research said in a note on Wednesday that Malaysia's inflation risks tilt modestly to the upside into 2026.
"Firms outside targeted subsidy schemes face higher operating costs, while the increase in the sales and service tax (SST) rate raises the likelihood of gradual second-round effects," said the research house.
According to Kenanga, the planned introduction of a multi-tier levy for migrant workers this year may add further cost pressures in labor-intensive sectors, while rising geopolitical tensions also pose upside risks to prices.
"Taken together, these factors could lift average inflation to around 1.9 percent in 2026, from 1.4 percent in 2025, with core inflation edging up to 2.2 percent from 2 percent," it said.
However, it added that continued energy subsidies and imported disinflation from a stronger ringgit should keep inflation below its 30-year average of 2.3 percent.
Hong Leong Investment Bank also said in a note on Wednesday that it sees Malaysia's post-pandemic disinflationary trend remaining intact.
"Looking into 2026, we expect the consumer price index (CPI) in Malaysia to trend slightly higher to 1.7 percent, driven by low base effect, domestic policy adjustments, as well as communication-related inflation," said the research house.
Nevertheless, it noted the upward trajectory is anticipated to be mild due to lower RON95 prices, a benign global commodity environment, coupled with a strong ringgit.
"Against this backdrop of subdued inflation and solid economic growth, we continue to expect Malaysia's Central Bank to keep the overnight policy rate (OPR) at 2.75 percent through 2026," it added. ■
