Malaysians still feel prices are high despite easing inflation, Bank Negara explains why

KUALA LUMPUR, Nov 10 — Malaysia's inflation rate has slowed, but this does not necessarily mean everyday costs are lower for households, according to the country's central bank, Bank Negara. The Consumer Price Index (CPI) tracks changes in the price of a standard basket of goods and services, but it does not reflect individual spending patterns and income levels.

This is why Malaysians continue to feel financially strained even when inflation numbers indicate slowing price increases. In its 2025 Annual Report, Bank Negara explained that Malaysia's headline inflation averaged 1.4 percent in 2025, the lowest in five years, but noted that high living costs remain a concern for many. In the first nine months of 2026, inflation averaged 1.8 percent, with core inflation at 2 percent.

The difference between official inflation figures and the cost of living is partly due to how households experience price changes, particularly in frequently purchased items such as food and beverages, which greatly influence perceptions of inflation. Bank Negara highlighted two behavioural factors influencing household perceptions: frequency bias, where staples like food and beverages have a stronger impact on people's assessments of price changes, and memory bias, where price increases tend to be more memorable than price declines.

The Everyday Price Index (EPI) and Perceived Price Index (PePI) are more reflective of household experiences, assigning greater weight to frequently purchased items and including only items with price increases, respectively. The central bank emphasized that beyond measuring inflation, a key issue is whether household incomes are growing enough to keep up with price increases.

From 2019 to 2024, Malaysia's headline CPI rose 9.3 percent, while nominal wages per worker grew by only 7.2 percent. This means that, on average, workers must work more hours to afford the same basket of goods. Stable and predictable inflation allows households to plan their spending, saving, and investment decisions, supporting economic activity and growth.

However, preserving household purchasing power depends not only on prices but also on incomes. When prices increase slowly and predictably, wages can rise alongside prices, helping households maintain their purchasing power. To address the cost-of-living challenge, a broader policy response is needed that tackles both household expenditure and income growth.

While maintaining low and stable inflation is crucial, it alone cannot fully preserve purchasing power. Household wellbeing is also shaped by wage growth, productivity, and broader cost of living trends.