by Theleaders | April 20, 2026 9:15 am
KUALA LUMPUR, April 20 — The government’s call for Malaysians to be more mindful in their spending reflects the realities of a supply shock, economists say, as global disruptions begin to put pressure on prices.
Lee Heng Guie, executive director of the Socio-Economic Research Centre (SERC), said the current situation is driven by supply constraints, warning that stimulating demand at this stage could worsen inflation.
“You have a supply shock. Now, we don’t feel that yet because subsidies are buffering the impact, so it hasn’t really hit your pockets.
“But inflation has started to creep up and the cost of living will remain elevated,” Lee said when contacted by Malay Mail.
Subsidies cushion impact, but stimulus risks fuelling further inflation
Explaining further, he said subsidies are effectively cushioning households and preserving disposable income, which would otherwise be eroded by higher fuel costs.
“Without subsidies, you might have spent all your disposable income. So that is an indirect buffer to your disposable income, reducing fuel prices and the potential rise in inflation,” he said.
However, he cautioned that stimulating demand through broad-based measures would undermine that balance.
“If you continue to stimulate the economy, it will put more pressure on supply and create second-round inflation that is even worse. You don’t want to add fire to demand when you have a supply shock,” he said.
“You should let demand slowly adjust. We are not reaching a point that is so critical that the government needs to do a big stimulus to get consumers to spend.”
Lee added that blanket handouts would add pressure on resources and raise inflation risks further.
“That could add more pressure on resources and set inflation risk even higher. At this moment, measures taken by the government cannot be too stimulative,” he said.
He added that Malaysia is not at a critical stage that requires aggressive stimulus, noting that the labour market remains strong with unemployment at about 2.9 per cent.
“I don’t think at this juncture we should be in a hurry to roll out stimulus,” he said.
Consumers expected to adjust spending behaviour
Lee added that households are already likely to adjust behaviour in response to rising prices.
“People will automatically know that the cost of living will be rising… they will reduce discretionary spending. You should expect adjustment in consumer spending, moderated investment and cautious sentiment,” he said, pointing to slower-than-expected GDP growth.
He also cautioned against premature monetary easing, saying central banks globally are taking a wait-and-see approach.
“No one knows whether this effect will be transitory or permanent, but there will definitely be some price pressure already built up in the economy.
“I also hope that politicians do not pressure the central bank to cut interest rates now. Not now, you can wait and see first.”
Lee said businesses are already facing higher costs but holding prices for now in hopes the situation will stabilise.
“Some restaurants say their supplies cost more, but they are still maintaining prices because they hope the war will end. Even if it ends, it will take six to eight months to stabilise,” he said, cautioning against complacency.
“We should not take that as a given and continue to consume,” he said.
Lee said government measures — including subsidies, targeted aid and steps to reduce fuel consumption such as working from home — reflect demand management.
“The intention is to reduce pressure on fuel consumption. This is the right playbook.
“We are operating in a crisis mode, but the fundamentals are still there,” he said.
Supply constraints at core of crisis
Khazanah Research Institute chairman Nungsari Ahmad Radhi said the crisis is fundamentally a supply constraint, particularly in crude oil and its downstream products.
“The problem is a supply constraint — we don’t have the same levels of supply of crude oil that we need because of the war. Without crude oil, our refineries lack the feedstock to produce petrol, diesel, jet fuel and other petrochemicals,” he said.
“That means we have shortages of the by-products of crude oil refining.”
He added that the government has said it currently has crude oil reserves lasting up to June, making it critical to stretch existing supply.
“The imperative is to lengthen the use of the reserves we have.
“To do that, we have to reduce consumption of all crude oil by-products — drive less, use less petrol and diesel, use less electricity,” he said.
Nungsari also said that disruptions will extend beyond fuel into other sectors.
“There are also other by-products like plastics, packaging material and fertilisers that will be disrupted.
“We need fertilisers, but if supply is not there, there will be no supply and we live with the consequences,” he said.
He stressed that the crisis should be understood clearly as a supply shock, not a demand shock.
“In a demand shock, you need to prop up demand. In a supply shock — which is typically inflationary — you need to remove constraints on supply and reduce demand on the commodities whose supply is limited,” he said.
This current situation bears similarities to past oil crises, he added.
“This is akin to the 1974 crisis during the Arab oil embargo (in scale and nature). The 1997/98 Asian Financial Crisis and the 2008/09 Global Financial Crisis were financial crises — this is different,” he said.
He said the immediate concern is the availability of crude oil and its refined products, with policy focus on conservation.
“The immediate policy must be about conserving whatever we have and using it as long as we can, not knowing when we can get more and at whatever price,” he said.
While prices have already risen, he said the broader economic impact will depend on how long the crisis lasts.
“The secondary effect will be slower growth if this lengthens — what is called stagflation. For now, growth is still there. The priority is supply,” he said.
“But if this continues, supply constraints will not only affect consumption, but production too. Then we have a contraction problem. We are not there yet.”
Prudence needed, not a halt in spending
Bank Muamalat Malaysia Sdn Bhd chief economist Mohd Afzanizam Abdul Rashid said while there is a risk that slower consumer spending could weigh on the economy, the advice for prudence should be viewed in the right context.
“There is a risk that slower consumer spending would slow the economy since private consumption accounts for 60 per cent of GDP.
“However, we need to put the right context with respect to such advice,” he said.
“The economic uncertainties have heightened and prices could be higher. So the advice is about being prudent in their spending, not to stop the spending,” he added.
He also said that it is common to see lower spending during periods of economic stress.
“It is common to see lower spending during economic calamities.
“In that case, the role of government spending is very critical to stimulate the economy,” he added, referring to taxes, fiscal measures and policy adjustments.
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