July inflation moderates as input costs are absorbed, averting price surge

Malaysia's inflation rate is expected to remain stable for the remainder of 2026, with the Consumer Price Index (CPI) showing a moderate increase. In July 2026, inflation stood at 1.8% year-on-year, a slight decrease from 1.9% in the previous month, according to CGS International (CGSI) economist Mas Aida Che Mansor.

CGSI's research indicates that many producers are absorbing higher input costs instead of immediately transferring them to consumers. This strategy has helped prevent a more significant surge in prices. However, the firm warns that the gap between the Producer Price Index (PPI), which jumped 9.2% in June, and the CPI suggests that upstream cost pressures have not yet been fully reflected in final product prices.

The July inflation figures were primarily driven by a 1.8% increase in food and beverage prices, with food away from home rising by 2.5%. Additionally, public utilities and services saw a 1.8% increase, partly due to adjustments in the Imbalance Cost Pass-Through (ICPT) surcharge for electricity.

In contrast, the transportation sector experienced a notable moderation in inflation, dropping from 2.8% in June to 1.4% in July. This easing was partly attributed to the implementation of the BUDI Diesel program, which reduced fuel costs for eligible recipients.

Despite these factors, CGSI notes that the risk of inflation rising remains if businesses begin to pass on upstream costs more aggressively or if global energy prices become volatile. However, the strengthening ringgit and government assistance programs, including targeted subsidies and cash transfers, are expected to continue supporting household spending. Core inflation is projected to stay within a moderate range of around 1.8% in the near term, with overall price pressures remaining under control.