Kuala Lumpur:The gap between Malaysia's producer and consumer inflation indicates that businesses are currently absorbing some of their rising costs. However, consumers might face higher prices in the future if these pressures continue, as stated by Bank Muamalat Malaysia Bhd.

According to BERNAMA News Agency, Dr. Mohd Afzanizam Abdul Rashid, the chief economist at Bank Muamalat, predicts that inflation will increase to 2.2 percent in 2027 from a forecasted 1.8 percent in 2026. This rise could occur as businesses start to pass on higher operating costs to consumers.

Dr. Afzanizam explained that the current consumer price index inflation, which is approximately 1.9 percent, suggests that businesses have not yet fully transferred the increased costs of raw materials and fuel to their customers. He highlighted that businesses are absorbing these rising costs to protect their market share and maintain client relationships.

However, the capability of businesses to continue absorbing these additional costs is limited. Eventually, they may need to pass these costs on to consumers if raw material and other expenses remain high. Dr. Afzanizam noted that there is a time lag between rising operating costs and their effect on consumer prices.

His observations were made following comments by World Bank lead economist Apurva Sanghi, who warned of potential inflation risks due to rising upstream cost pressures. Despite Malaysia having one of the lowest inflation rates in the region, producer price inflation has increased significantly, moving from negative figures in December 2023 and February 2024 to over 10 percent in June and nearly 11 percent in August 2026.

The World Bank forecasts that headline inflation will modestly rise to two percent in 2026, with subsidies helping to limit the impact of higher energy prices on households.