World Bank: Malaysia’s inflation among region’s lowest, but upstream cost pressures rising

KUALA LUMPUR, Oct 6 — The World Bank's lead economist Apurva Sanghi stated that Malaysia's inflation remains one of the lowest in the region, however, rising upstream cost pressures could present an inflation risk later this year. Producer price inflation surged from negative in December 2023 and February 2024 to over 10% in June and near 11% in August this year, reigniting upstream cost pressures.

The World Bank anticipates a modest rise in headline inflation to 2% this year, despite subsidies mitigating the transmission of inflation to households. In August 2026, Malaysia's inflation rate of 1.9% stood out as comparatively low when compared to regional peers Thailand (2.5%), Indonesia (3.2%), Vietnam (4.9%) and the Philippines (6.1%).

Sanghi noted that lower-income households, those earning less than RM3,000 a month, faced milder price pressures. Inflation for these households averaged 1.2% in the first half of the year and stayed below headline inflation every month. Income growth and transfers have outpaced living costs more for lower-income households than for higher-income households.

Malaysia's economic growth has surpassed expectations, driven by external demand while domestic demand played a supporting role. Private consumption growth accelerated to 4.8% in the second quarter (2Q) from 4.7% in the first quarter (1Q), while private investment growth decelerated to 4.3% from 7.8%. However, private investment as a share of gross domestic product is below pre-pandemic levels, at 15.8% last year, compared to 16.9% during the 2015-2019 period.

When looking at broader measures, consumer sentiment, business confidence, and private investment were not clearly trending upwards. Consumer sentiment hit its lowest point since 2022, according to industry research, while business confidence was a low as during the pandemic.