Many Malaysians feel that groceries, meals, and everyday essentials cost more than they used to, even though Malaysia’s official inflation rate remains relatively low. This gap between data and real-life experience is common, and Bank Negara Malaysia has shared several reasons why it happens. The following explanation draws from a recent BNM media workshop and other guidance issued by the central bank.

Inflation Measures Average Price Changes, Not Individual Spending Patterns

Inflation tracks how prices change over time. It is measured using the Consumer Price Index, a national indicator produced by the Department of Statistics Malaysia. The CPI is based on a fixed basket of goods and services, ranging from food and transport to housing and healthcare. Each item carries a different weight that reflects how much an average household spends on it.

In October 2025, the CPI showed an annual increase of 1.3%. This means that prices, on average, rose by 1.3% over the year. A low number does not mean prices are falling. Instead, it shows that prices are rising slowly compared with earlier periods.

However, the CPI basket represents the average Malaysian household. It does not fully capture spending patterns of different income groups or people living in different parts of the country. Someone who spends a larger share of income on food, for example, feels inflation differently from someone who spends more on services or discretionary items.

The Cost Of Living Depends On Household Needs, Not Just Price Movements

Inflation forms only one part of the cost-of-living equation. The cost of living refers to how much a household needs to maintain a basic standard of living. It covers essentials such as food, transport, rent, utilities, healthcare, and education.

Two households facing the same inflation rate can experience very different financial pressures. A family with school-going children or a long daily commute may feel rising costs more immediately than someone with fewer regular expenses. Location also matters, since the price of housing, public transport, and food varies across states.

This is why a low inflation rate does not necessarily translate into a comfortable cost of living for every household.

Purchasing Power Declines When Wages Rise More Slowly Than Prices

A key reason many Malaysians feel financially strained is that wages have not always risen at the same pace as cumulative price increases. Even if annual inflation is low in the current year, households still face the impact of several years of rising prices.

When income growth lags behind the cost of essentials, purchasing power declines. This effect is more noticeable for the B40 and parts of the M40, who tend to allocate a larger share of their spending towards necessities such as food and transport. These categories are sensitive to price changes because there is less room to adjust spending.

Why Official Figures Often Feel Different From Reality

Bank Negara Malaysia has identified two behavioural factors that shape how people experience inflation.

Frequency bias occurs because consumers pay closer attention to items purchased regularly. Prices of food, beverages, and fuel are more visible than prices of household appliances or electronics, which are purchased infrequently.

Memory bias causes individuals to recall price increases more vividly than price stability or price reductions. A rise in the price of eggs or rice will be remembered more strongly than a stable water bill or a temporary discount on clothing.

To study these perceptions, BNM developed two additional indices. The Everyday Price Index focuses on items that households buy frequently. The Perceived Price Index captures only items with rising prices to reflect the impact of memory bias. For September 2025, the CPI recorded 1.5%, the EPI showed 0.9%, and the PePI reached 5.5%. The difference illustrates why many households feel that inflation is higher than the CPI suggests.

How Monetary Policy Helps Maintain Stable Prices

Monetary policy plays an important role in managing inflation. Bank Negara Malaysia adjusts the Overnight Policy Rate to influence borrowing costs and general economic activity. A higher OPR tends to reduce demand by making loans more expensive. A lower OPR encourages spending by easing financing costs.

These adjustments support long-term price stability. However, monetary policy works gradually. It does not immediately lower the cost of living, especially for expenses driven by global commodity prices or supply disruptions.

How Fiscal Support Helps Households Manage Rising Costs

The government complements monetary policy through fiscal measures aimed at easing pressure on lower-income groups. Targeted assistance programmes such as Sumbangan Asas Rahmah and Sumbangan Tunai Rahmah provide direct financial relief. Subsidies for essential items, including fuel and selected food items, help reduce the impact of rising global prices.

These measures are designed to help households manage short-term pressures, particularly when external factors influence food and energy prices.

Long-Term Solutions Focus On Sustainable Income Growth

A more durable way to address the cost of living is through higher and more equitable income growth. Structural reforms that improve productivity, encourage investment, and support the development of high-skilled industries help create better-paying jobs. Over time, stronger wage growth allows households to cope with rising prices more comfortably.

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