Malaysia’s headline inflation increased to 2.0% year-on-year (YoY) in May 2026, marking its highest level in two years, driven mainly by higher food and housing costs, according to a report by Kenanga Research.
The latest consumer price index (CPI) reading was slightly below Kenanga’s and market expectations of 2.1%, while remaining higher than April’s 1.9%.
On a month-on-month (MoM) basis, prices rose 0.15% in May, easing from the 0.37% increase recorded in April. Kenanga said the slower monthly growth suggested that inflation momentum moderated despite the higher annual reading.
Core inflation remained unchanged at 2.0% YoY, reinforcing expectations that underlying price pressures remain contained.
Kenanga said inflation pressures shifted towards food and housing-related categories, while transport inflation eased.
The Food & Beverages segment rose to 1.4% YoY in May from 1.2% in April, reaching a four-month high. The increase was driven by a 0.3% MoM rise following a rebound in food-at-home inflation, which turned positive at 0.2% compared with a 0.4% decline previously.
Higher fresh meat prices, which increased 0.7%, and vegetable prices, which jumped 5.0%, contributed to the stronger food inflation reading.
Housing, Water, Electricity, Gas & Other Fuels inflation also edged higher to 1.2% YoY from 1.1% previously. The category recorded a 0.5% MoM increase, supported by higher rental costs, maintenance charges and electricity prices.
Meanwhile, transport inflation moderated to 3.8% YoY from 4.1% in April, as prices declined 0.5% MoM.
The decline was mainly due to lower diesel prices (-10.0% MoM), petrol prices (-0.7%) and lubricant costs (-1.2%). However, domestic and international airfares remained elevated.
Kenanga noted that inflation trends across major economies remained uneven, with energy prices and geopolitical developments continuing to influence price movements.
In the United States, inflation climbed to 4.2% in May from 3.8% previously, reaching a three-year high as Middle East tensions pushed energy prices higher.
Kenanga said energy remained the main driver of US inflation, with risks of broader spillovers into transport and services increasing.
In Japan, inflation rose slightly to 1.5% in May from 1.4% in April, staying below the Bank of Japan’s 2% target for a fifth consecutive month. Fuel subsidies helped offset imported cost pressures, although underlying inflation momentum remained firm.
Meanwhile, China’s inflation was unchanged at 1.2% YoY in May, remaining below expectations due to weak domestic demand and limited pricing power among businesses.
Kenanga maintained its 2026 inflation forecast at 2.1%, compared with 1.4% in 2025, noting that the US-Iran ceasefire would only partially ease energy market disruptions.
While the ceasefire reduced the risk of prolonged supply shocks linked to the Strait of Hormuz, energy markets would require time to normalise as shipping routes adjust, inventories are rebuilt and supply chains recalibrate.
For Malaysia, Kenanga said fuel subsidies under the BUDI95 programme would continue to shield most households from immediate petrol price volatility.
However, food inflation risks remain due to potential lagged effects from transport costs and higher input prices.
On monetary policy, Kenanga expects Bank Negara Malaysia (BNM) to maintain the Overnight Policy Rate (OPR) at 2.75% throughout 2026.
The research house said policy stability would remain the central priority, supported by resilient domestic demand and manageable inflation pressures.
“Relative ringgit stability and a more balanced external environment following reduced geopolitical tensions provide additional room for policy flexibility,” Kenanga said.
The firm expects BNM to maintain a steady rather than reactive approach as policymakers balance growth support with inflation risks.
