BNM says lower inflation does not necessarily reduce the cost of living in Malaysia

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Highlights

Malaysia recorded average headline inflation of 1.4% in 2025, its lowest in five years, with inflation at 1.8% for the first nine months of 2026 and core inflation at 2%.
Between 2019 and 2024, headline CPI rose by 9.3%, while nominal wages increased by just 7.2%, forcing consumers to work longer to afford the same basket of goods.
The increase in the minimum wage to RM2,000 from June 2027 is expected to benefit more than four million workers, while Sara assistance has been expanded to nearly 13 million people.

This article was translated from the original. Read the original version by our correspondent here.

BNM's explanation of inflation measures

As reported by The Edge Malaysia, citing Bank Negara Malaysia in the article “Beyond the Headline: Inflation through the Eyes of Households” published in the 2025 Annual Report, the Consumer Price Index, or CPI, measures the rate at which prices rise for a basket of goods and services representative of the average consumer, but does not necessarily reflect each household's spending patterns, income levels and financial commitments.

According to the central bank, inflation measures how quickly prices are rising, not how high they have already become. Malaysia recorded average headline inflation of 1.4% in 2025, its lowest level in five years, while inflation for the first nine months of 2026 stood at 1.8% and core inflation at 2%.

BNM said households' perceptions of inflation are heavily influenced by frequently purchased goods, particularly food and beverages. To more closely reflect this experience, economists use indicators such as the Everyday Price Index, or EPI, which gives greater weight to frequently purchased items.

The central bank also explained that memories of price changes play an important role. Through what is known as memory bias, price increases tend to leave a stronger impression than price decreases. This pattern is reflected in the Perceived Price Index, or PePI, which considers only items that have recorded price increases and typically shows a higher inflation rate than the CPI and EPI.

Income pressures and policy implications

BNM's analysis shows that between 2019 and 2024, Malaysia's headline CPI rose by 9.3%, while nominal wages per worker increased by just 7.2%. This meant consumers had to work longer to afford the same basket of goods, including to cover food expenses as prices rose faster than wages in recent years.

BNM said preserving household purchasing power depends not only on prices, but also on income growth. While low and stable inflation is important in helping households and businesses plan their spending, savings and investments, the cost-of-living challenge calls for a broader policy response covering household expenses and income growth.

The central bank said measures such as minimum wage reviews have helped ease the burden on more than five million workers, while the increase in the minimum wage to RM2,000 from RM1,700 under Budget 2027 is scheduled to take effect in June 2027 and benefit more than four million workers. At the same time, it stressed that structural reforms are still needed to create more high-skilled, better-paid jobs, given that high-skilled jobs accounted for only 26% of new positions in 2025, below the 30% average for 2020 to 2024.

According to BNM, strengthening household purchasing power requires a combination of monetary policy, targeted fiscal support for vulnerable groups and structural reforms that boost productivity and incomes. Under Budget 2027, assistance through Sumbangan Asas Rahmah, or Sara, was also expanded to nearly 13 million Malaysians, including the M40 group.

In our earlier report on geopolitical tensions in the Middle East and their impact on inflation and Malaysia's monetary policy, we highlighted how persistently high energy prices could shape market expectations of BNM's next steps. We also explained the change in BNM's policy guidance, which was seen as allowing more room to adjust rates, as well as how these global factors interact with the outlook for inflation, the ringgit and volatility in the local bond market.

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