MONDAY 17 AUGUST 2026 – The Center for Market Education (CME) warns that Malaysia’s latest monetary and price data are beginning to show a combination that warrants close attention: money supply growth is accelerating back toward rates last seen during the Covid period, while producer prices are rising rapidly and consumer-price inflation, although still comparatively moderate, may be starting to reflect those pressures only gradually.

CME’s analysis of Bank Negara Malaysia and Department of Statistics Malaysia data shows that money supply (as measured by M2) expanded by 6.78% year-on-year in June 2026. This represents a marked acceleration from 3.66% in January, 4.46% in February and 5.63% in March. The latest pace is very close to the annual M2 growth recorded during the Covid-era monetary expansion, when the rate reached 6.91% in August 2020 and 6.75% in September 2020.

The monetary numbers matter because they are now interacting with a renewed supply-side squeeze. Producer prices, which are more sensitive to changes in energy, transport, imported inputs and intermediate goods, have turned sharply upward. Producer Price Index (PPI) inflation moved from -3.45% year-on-year in February to 1.10% in March, 5.38% in April, 7.77% in May and 9.22% in June. This is a very rapid reversal over only a few months.

Consumer prices have not yet followed the same trajectory. Consumer Price Index (CPI) inflation remained comparatively moderate, rising from 1.57% year-on-year in January to 2.01% in May before easing slightly to 1.93% in June. CME therefore does not claim that Malaysia is already facing a renewed inflationary spiral. The concern is instead forward-looking: the coexistence of a strong supply-side shock with an accelerating quantity of money creates the conditions under which temporary relative-price pressures can become more persistent and generalized.

The distinction between a supply shock and monetary inflation is central to CME’s interpretation. A disruption affecting the supply of oil, shipping, raw materials or other inputs changes relative scarcity: it can push the prices of particular goods, and even a broad range of goods, higher. But a one-off scarcity shock is not the same thing as a continuing monetary inflation process. Persistent inflation requires the quantity of money to continue expanding relative to the quantity of goods and services available for purchase.

This distinction is especially important in the present environment: in fact, Malaysia can do relatively little to remove external supply constraints linked to geopolitical disruptions around the Strait of Hormuz. Those constraints must ultimately be absorbed through adjustments in prices, consumption patterns, production plans and supply chains. What domestic policy can influence is whether those adjustments are accommodated by an excessive expansion of money and credit.

As argued in Chapter 4 of Economics: An Interpretative Science of Human Flourishing (published by Monolateral and CME, https://www.amazon.com/Economics-Interpretative-Science-Human-Flourishing/dp/1946374342/), the effects of monetary expansion are not instantaneous. Monetary growth can precede changes in nominal income and consumer prices by many months.

The chapter cites a typical lag of roughly six to nine months, with the full effect sometimes taking up to eighteen months. For this reason, the current moderation in CPI should not be treated as conclusive evidence that monetary risks are absent.

The Malaysian post-Covid experience must not be forgotten. During the pandemic period, M2 expanded while real output contracted, creating a monetary disequilibrium in which liquidity grew much faster than productive capacity. Consumer-price inflation emerged with a lag. When money growth later slowed relative to output, CPI inflation moderated. That historical episode suggests that policymakers should pay attention not only to today’s CPI number but also to the monetary conditions that may shape prices several quarters ahead.

Finally, monetary vigilance must be accompanied by fiscal discipline. The control of fiscal policy is particularly relevant because several forms of government intervention may carry embedded inflationary risks when they sustain demand, distort price signals or encourage credit and investment patterns that are insufficiently disciplined by market feedback.

Particular attention should therefore be paid to broad subsidy schemes, activist industrial policies and the predominant role of government-linked companies (GLCs) in sectors where investment decisions may be shaped more by policy objectives than by direct market incentives. Subsidies can delay necessary relative-price adjustments and generate additional fiscal burdens; industrial policy can channel resources toward politically selected activities while encouraging overinvestment; and a GLC-dominated economic structure can weaken the corrective role of profit, loss and competition. In the present environment, fiscal restraint should therefore complement monetary prudence: rather than attempting to offset external supply constraints through additional spending or intervention, policy should strengthen market discipline, reduce distortions and ensure that investment and consumption decisions respond as directly as possible to genuine price signals.

About CME: The Center for Market Education is a boutique think tank based in Malaysia and Indonesia committed to promoting market-based solutions, individual freedom, sound money and institutional reforms conducive to sustainable economic development.

Blending the intellectual drive of a think tank with the operational rigor of a consulting firm, CME delivers expert business advisory services, economic and policy analysis, and tailored capacity-building programs.

We support international companies seeking to enter Southeast Asian markets by providing in-depth market intelligence, strategic business-model guidance, and legal and institutional support. Alongside this, CME engages in policy research and advocacy aimed at fostering a more business-friendly environment grounded in innovation, openness, and free-trade principles.

CME also designs and delivers customized events and training programs for academics, business leaders, and diplomats, developing economics modules specifically adapted to the needs and objectives of each audience.