Your grocery bill may not have changed much lately, but the cost of getting those goods to shelves is climbing fast. Economists are warning that you could start seeing the effects of higher prices as early as this month, as businesses run out of room to absorb rising input costs driven by the conflict in the Middle East.

Since the US and Israel launched strikes on Iran in late February, the Strait of Hormuz has been effectively shut down. Around 20% of the world’s seaborne oil trade normally passes through this waterway. The disruption has pushed up the cost of crude oil, diesel, fertiliser, and shipping, and the effects are now filtering through to Malaysian producers.

Factory-Gate Prices Jumped In March

The producer price index (PPI), which tracks what businesses pay for materials before those costs reach you as a consumer, rose 1.1% year on year in March, reversing a 3.4% decline in February. On a month-on-month basis, the PPI jumped 4.1%, the biggest monthly increase in more than two decades. The mining sector drove the rebound, with crude petroleum extraction surging 38.5% as Brent crude oil prices climbed from US$71.11 per barrel in February to US$103.69 in March.

For now, the gap between what producers are paying and what you are paying at the checkout has held. Consumer inflation came in at 1.7% in March, up from 1.4% in February but still modest by historical standards. Fuel was the main driver. The average price of diesel in Peninsular Malaysia rose to RM4.12 per litre from RM2.98 in February, while RON97 petrol climbed to RM4.03 from RM3.11.

Grocery prices, by contrast, have stayed relatively flat. Food at home was up just 0.1% year on year, and vegetable prices actually fell 4.9%, with items like big onions and garlic down by double digits.

The Lag Between Producer And Consumer Prices

The concern is that this gap will not last. Businesses have been absorbing higher costs or drawing down inventory purchased before the conflict began. Once those cheaper stocks run out, the pressure to raise retail prices grows.

Bank Muamalat Malaysia chief economist Dr Mohd Afzanizam Abdul Rashid said that price pass-through from producers to consumers typically occurs within two to four months of an initial shock, pointing to a likely acceleration in consumer inflation between May and July.

Dr Nungsari Ahmad Radhi, an economist and chair of the Khazanah Research Institute, flagged a similar concern. With consumption making up about 60% of Malaysia’s economy, a supply-side shock that feeds into consumer prices has broad implications. Businesses can only hold the line on pricing for so long, he said.

Sunway University economics professor Dr Yeah Kim Leng noted that inflation could spike to 3% or higher, exceeding Bank Negara Malaysia’s projected range of 1.5% to 2.5%, if the crisis drags on. Both Nungsari and Yeah sit on the National Economic Action Council as advisers to the Prime Minister.

For now, weak domestic demand may act as a brake. If consumers are already pulling back on spending, businesses may be reluctant to raise prices aggressively, even as their own costs climb. That restraint, however, has limits.

Where The Price Pressure Is Coming From

The cost increases are not limited to fuel. Urea, which is widely used as fertiliser in agriculture, has become more expensive. Diesel used to power farm equipment and logistics vehicles is at elevated levels. Shipping and freight costs have risen as vessels reroute around the disrupted strait.

These input costs feed into the price of everything from rice and cooking oil to manufactured goods and services. The longer the Strait of Hormuz remains disrupted, the harder it becomes for producers to absorb costs.

Core inflation, which strips out volatile items like fresh food and administered prices, rose to 2.1% in March from 2.0% in February. That measure gives a closer look at underlying price pressures and suggests that costs are building beneath the surface, even if headline figures still look contained.

What About Government Subsidies?

One reason consumer inflation has stayed relatively low is Malaysia’s system of subsidies and price controls on fuel and other goods. Subsidised RON95 petrol remains capped at RM1.99 per litre under the Budi95 programme, which has kept transport costs manageable for most households.Price protection comes at a steep cost to the government. The monthly fuel subsidy bill has surged to around RM7 billion, roughly ten times the pre-conflict level of about RM700 million. The government has already cut the monthly subsidised fuel quota from 300 litres to 200 litres per person and, according to the Ministry of Finance, has ordered all ministries to review their 2026 operating budgets and submit proposed cuts by 15 May.

Nungsari remarked that the government has stretched its fiscal capacity considerably. Fuel subsidies alone now consume a significant share of the national budget, and sustaining them at current levels while global oil prices remain elevated raises difficult questions about what else gets cut.

What This Means for Your Monthly Budget

If inflation does accelerate past 2% in the coming months, you may start to notice it in areas other than your  fuel bill. Restaurant meals, transport services, and manufactured goods are all exposed to higher input costs. Insurance and financial services already rose 4.9% in March, and personal care costs climbed 7.0%.

The government’s subsidies have shielded you from the worst of the oil price shock so far. But economists are watching closely to see whether the protection can hold, especially if crude prices remain above US$100 per barrel and the conflict shows no sign of resolution.

For everyday spending, the next two to three months will be telling. If you have been planning larger purchases or budgeting for fixed expenses, it is worth keeping an eye on how quickly producer costs start showing up in retail prices.Follow us on our official WhatsApp channel for the latest money tips and updates.