Malaysia's inflation rises to 1.9pct in Q2 as fuel costs increase

Malaysia's headline inflation increased to 1.9% in the second quarter of 2026 from 1.6% in the previous quarter, according to Bank Negara Malaysia. This rise can mainly be attributed to higher external costs and rising fuel prices. Fuel prices, particularly RON97 and diesel, went up during the quarter, leading to fuel inflation surging to 5%, compared to a decline of 1.5% in the beginning of the year.

Despite this increase in headline inflation, underlying price pressures have softened. Core inflation decreased to 1.9% from 2.1% in the first quarter, indicating milder price increases in sectors like jewelry and watches, and rent. The inflation in these sectors moderated to 23.7% from 39.1% previously, while rent inflation fell to 1.4% from 1.6%.

Producer cost pressures also rose during the quarter, but Bank Negara stated that these pressures were mainly at the initial stage of production with limited impact on later stages and broader consumer prices. Inflation's reach expanded during this period, with the Consumer Price Index items seeing monthly price increases at 45.5%, up from 38.3% in the first quarter.

This surge was mainly due to a sharp increase in April, followed by a moderate rise in May and June. Bank Negara anticipates inflation to stay moderate in 2026, with a projected average of 1.5% to 2.5% for headline inflation. They believe external cost pressures from the Middle East conflict might cause some upward pressure on prices, but the overall effect is expected to remain contained.

Targeted fuel subsidies and steady domestic demand are anticipated to limit the transmission of higher global costs to consumers. Thus, the outlook for inflation remains relatively stable, although global energy prices and geopolitical developments are seen as key risks for the Malaysian economy in the coming months.