Tame inflation eases pressure on BNM

PETALING JAYA: Inflation is expected to remain benign next year, providing adequate room for Bank Negara Malaysia (BNM) to cut rates if economic growth weakens.

A day after the Statistics Department reported November’s headline inflation below the market forecast, Hong Leong Investment Bank (HLIB) Research said the near-term inflation trajectory remains modest. This is supported by the disinflationary impact of lower RON95 petrol pump prices, subdued global oil prices, and a stronger ringgit.

Upward price pressures from domestic policy adjustments are expected to be limited, the research house added.

“Upside risks to cost-push inflation also appear muted, with the producer price index continuing to record negative growth,” it told clients in a note.

TA Research also highlighted that inflation risks remain tilted to the downside, with limited near-term upside.

It said global commodity prices are expected to stay soft, supported by easing energy costs, smoother supply chains, and fewer transport bottlenecks.

“Domestically, any adjustments in administered prices – like energy tariffs or subsidy rationalisation – are likely to be gradual, cushioning vulnerable households,” it added.

In November 2025, the headline consumer price index (CPI) rose 1.4% year-on-year (y-o-y), up slightly from October but below the consensus forecast of 1.5%.

The CPI was flat month-on-month, signalling muted price pressures.

Overall inflation remains well contained, with no broad-based cost pass-through or supply shocks. At 1.4%, inflation is also well below its long-term average of 2.1%.

Core CPI also held steady at 2.2% y-o-y and was unchanged month-on-month.

The gap with headline inflation reflects stable global commodity prices, which kept fuel and fresh food inflation subdued.

Domestic demand factors – including wage adjustments, higher services costs and price stickiness – continued to support core inflation.

Meanwhile, Apex Securities said Malaysia’s core inflation has been on a gradual uptrend in recent months, up from 1.8% at the start of the year.

While the pace remains measured, core inflation has now held at its highest level since October 2023 for two consecutive months.

“This reinforces our view that strength in domestic demand will carry through into next year and remain the key growth anchor amid a volatile external environment,” Apex Securities said.

“A firm labour market, with unemployment holding at a decade-low of 3% in October, alongside ongoing income-related policy support for lower-income groups, should continue to underpin consumption momentum.

“In addition, the benign headline inflation environment should further support consumer sentiment and spending,” it added.

With inflation averaging 1.4% y-o-y in the January-November 2025 period, the research house maintained its full-year 2025 inflation forecast at 1.4%.

For 2026, given the muted policy pass-through – particularly from the sales and service tax expansion – Apex Securities revised its inflation forecast lower to 1.8% from 2%, implying a modest pickup next year.

“On the monetary front, while we continue to expect BNM to keep the overnight policy rate unchanged at 2.75% next year, the benign inflation backdrop provides policy room for BNM to ease should the growth outlook weaken amid a volatile external environment,” Apex Securities added.

HLIB Research also reiterated its expectation for the central bank to hold the benchmark interest rate at 2.75% throughout 2026.