Inflation rate in Malaysia is moving in upward trend as it posted 2.6% year on year increase in November. The higher inflation rate is largely contributed by tobacco prices. 

The Malaysian government raise taxes in the 2016 budget on alcoholic contained products and caused the index to increase by 20.8% m/m in November. Likewise, food prices increased by 4.1% y/y. The transport costs reduced by 5.2% y/y during the same period and marginally offset the overall inflation rate.

"Bank Negara Malaysia has already said it expects inflation to trend higher in coming months, but we think there is unlikely to be a policy response to inflation prints. We think the current monetary stance will be maintained because underlying inflation is contained. BNM sounded cautious about the global growth backdrop in its latest policy statement and in our view is likely to remain on hold through 2016", states Barclays.