Malaysia Faces Persistent Shock from Rising Oil Prices

Malaysia's economy is facing a persistent shock from the recent surge in oil prices due to the Middle East conflict. According to Sunway University economics professor Yeah Kim Leng, this will not be a temporary issue but one that requires sharing the burden between consumers, businesses, and the government.

The current producer price index has risen for five consecutive months, from a 3.4% contraction in February to a 9.7% increase in July, putting pressure on businesses which may pass some of these increased costs onto consumers. Yeah expects higher producer costs to gradually feed into consumer prices, with the consumer price index (CPI) likely to inch up by 0.1 to 0.2 percentage points.

The Federation of Malaysian Manufacturing (FMM) also noted that sustained Brent crude prices above US$100 per barrel will continue to pressure manufacturers, particularly through higher energy and transport costs. FMM's business conditions survey for the first half of 2026 showed the production cost index rising to 163 from 146, with 69% of respondents reporting higher production costs.

OCBC senior Asean economist Lavanya Venkateswaran said Malaysia's fuel subsidy bill could swell to nearly RM37bil this year if Brent averages US$100 per barrel, more than double the Budget 2026 estimate of RM15bil. This would be equivalent to about 1.8% of gross domestic product.