HLIB expects Malaysia's inflation to remain contained in second quarter of 2026

KUALA LUMPUR, Aug 18 — Hong Leong Investment Bank Bhd (HLIB) expects Malaysia’s inflation to remain contained through the second half (2H) of 2026, supported by continued BUDI95 and BUDI Diesel subsidies. However, energy price volatility remains a key upside risk to inflation amid the US-Iran stalemate in West Asia. HLIB notes that, as of July 2026, the seven-month Consumer Price Index (CPI) averaged 1.8% year-on-year (y-o-y), below its full-year forecast of 2.0% y-o-y. Public Investment Bank Bhd (PIVB) maintains its 2026 CPI forecast at 2.1% y-o-y, with inflation expected to be increasingly back-loaded. Brent crude oil prices are projected to trade between US$70 and US$85 per barrel for 2H 2026 due to constrained shipping through the Strait of Hormuz. The Producer Price Index rose 9.2% y-o-y in June, driven by energy and intermediate materials. Higher fuel adjustment charges, freight costs, and El Niño-related impacts are expected to increase food, utilities, and distribution costs into the fourth quarter (4Q) of 2026. Despite these risks, BNM’s inflation pervasiveness measure has eased from 50.8% in April to 40.3% in June. HLIB and PIVB both expect Bank Negara Malaysia (BNM) to retain the overnight policy rate (OPR) at 2.75% through end-2026, unless second-round effects persist across core services, wages, and inflation expectations.