Despite Inflation Uptick, BNM Expected To Keep OPR Steady

Malaysia’s headline inflation edged higher to 1.7% year-on-year in March, up from 1.4% in February, largely driven by higher transport costs and base effects, according to Kenanga Investment Bank. The reading came in line with market expectations but slightly below the research house’s forecast of 1.8%. Despite the uptick, underlying price pressures remained contained, with inflation rising just 0.29% month-on-month, indicating that the increase was largely due to statistical base effects rather than a broad-based acceleration in prices. Core inflation, which strips out volatile items, inched up to 2.1% year-on-year from 2.0% previously, reflecting firmer costs in services and transport-related components. Transport was the main driver of inflation, rebounding sharply to 1.6% after contracting 0.7% in February. The increase was fuelled by higher fuel prices, with diesel rising 18.5% month-on-month and petrol up 3.3%, alongside a 15% surge in domestic airfares. Other segments also recorded price increases. Inflation in information and communication rose to 1.4%, its highest level since September 2020, supported by higher subscription costs for streaming and digital services. Meanwhile, prices for personal care and miscellaneous goods climbed to a record 7.0%, driven by higher jewellery and watch prices. In contrast, food and beverage inflation eased to 1.1%, a six-year low, as food-at-home prices continued to decline on a monthly basis, helping to offset broader price pressures. Globally, inflation trends have been more pronounced amid ongoing geopolitical tensions. In the United States, inflation surged to 3.3% as higher fuel prices pushed costs upward, while the European Union saw inflation rise to 2.5%, exceeding the European Central Bank’s target due to rising energy costs. In China, headline inflation moderated to 1.0%, although producer prices turned positive for the first time in three years. Kenanga maintained its full-year inflation forecast for Malaysia at 2.1% in 2026, up from 1.4% in 2025, but warned of rising risks stemming from global energy disruptions, particularly involving the Strait of Hormuz. The research house noted that higher energy and fertiliser costs could eventually feed into food prices, posing risks to affordability and consumer spending, which remains a key driver of economic growth. On the policy front, Bank Negara Malaysia is expected to keep the Overnight Policy Rate (OPR) unchanged at 2.75%, balancing the need to support growth while managing inflation risks. Kenanga added that policymakers may tolerate moderately higher inflation in the near term, with a stronger ringgit helping to cushion imported cost pressures.