KUALA LUMPUR, March 13 (Xinhua) -- Economists are warning of rising inflation risks for Malaysia if the Middle East conflict escalates and disrupts energy supplies, with higher oil and liquefied natural gas prices likely to drive up costs across transportation, food production and consumer goods.
UOB Global Economics and Markets Research said in a note on Thursday that if the conflict escalates or the Strait of Hormuz remains closed for more than a month, forcing sustained high oil and liquefied natural gas (LNG) prices, Malaysia could face higher inflation.
According to the research house, every 10 U.S. dollars per barrel (bbl) increase in Brent oil prices could lift Malaysia's headline inflation by 0.2 percentage point (ppt), should the Malaysian government maintain current levels of subsidized petrol RON95 prices, monthly diesel subsidies, and electricity rebates.
Nevertheless, if the government makes some upward adjustments to subsidized RON95 price and electricity rates in tandem with the global oil price movements, the country's headline inflation is projected to rise by 0.6 ppt to 1 ppt for every 10 USD/bbl increase in Brent oil prices, it added.
All these estimates, however, reflect only the direct effects from fuel and electricity costs and exclude indirect spillover impacts on food, air passenger transport, selected services, and jewelry prices.
Meanwhile, MBSB Research said in a note on Friday that it remained mindful of geopolitical risks.
"Should the Middle East conflict escalate into a prolonged, multi-month disruption, particularly involving the Strait of Hormuz, higher oil prices could trigger broader cost inflation across freight, packaging (via petrochemical inputs), fertilizer-linked agriculture and imported raw materials," it said, adding that these will weaken household purchasing power through broader inflation.
Nomura, in its recent report, has also raised Malaysia's 2026 consumer price index (CPI) inflation forecast to 2.1 percent from 2 percent to reflect the impact of higher oil prices.
"Our forecast pencils in a pickup from the second quarter onwards, supported by core inflation edging up due to robust domestic demand and strong labor market conditions," said the research house.
Malaysia's headline inflation was stable at 1.6 percent year on year in January, with higher electricity rates and gold jewelry prices offset by lower fuel prices. ■
