What Inflation Is Doing to the Money in Your Bank

Inflation quietly shrinks what your savings can buy. If prices rise by 2% a year and your money earns 0.25% in a basic savings account, RM10,000 today will buy only about as much as RM8,400 does now after ten years. The balance goes up slightly; its buying power goes down.

Where inflation is now

According to the Department of Statistics Malaysia (DOSM), inflation was 1.9% in August 2026, up from 1.8% in July. Monthly figures for 2025 averaged about 1.4%. Bank Negara said headline inflation averaged 1.8% in the first seven months of 2026, and that pass-through to consumer prices has so far been contained by domestic policy measures, although elevated global commodity prices continue to put upward pressure on costs.

Those are averages across the whole economy. Your own inflation depends on what you buy. DOSM figures from August 2025 showed prices for food away from home rising 4.3% year on year, well above the headline rate. If you eat out a lot, your personal inflation may be higher than the official number.

Nominal vs real returns

The interest rate your bank quotes is the nominal return. What matters is the real return: roughly, the nominal rate minus inflation.

Here's RM10,000 over ten years, assuming 2% inflation a year:

Illustrative; assumes rates and inflation stay constant, which they won't.

Another way to see it: at 2% inflation, prices roughly double in 35 years. At 3%, they double in about 23. That matters most for money you'll need far in the future, such as retirement savings.

What it means for retirement

Inflation matters most for goals decades away. If you'd need RM3,000 a month to live on today, then at 2% inflation you'd need about RM5,430 a month in 30 years to buy the same things. At 3%, you'd need about RM7,280. Retirement targets set in today's ringgit will fall short unless your savings grow faster than prices.

That's why EPF's retirement benchmarks are reviewed over time, and why long-term savings shouldn't sit in cash.

Lifestyle inflation

There's a second kind of inflation you control: spending that rises with your income. A pay rise quickly becomes a nicer phone, more meals out and a bigger car loan. None of these is wrong, but if your spending grows as fast as your pay, your savings rate never improves. A simple rule: save at least half of every raise before you adjust your lifestyle.

What to do about it

For short-term money (emergency fund, sinking funds): accept a low return in exchange for safety, but don't leave it all at 0.25%. Fixed deposits or term deposit-i can roughly keep pace with inflation. See where to keep your emergency fund.

For long-term money (goals ten or more years away): you need returns that beat inflation over time, which generally means accepting some ups and downs. EPF, for example, has a target of paying at least 2% a year above inflation over rolling three-year periods, and says it has met it. Diversified investments can also grow faster than prices over long periods, though with more risk in any single year. See are you losing money by waiting to invest?

Keep your income growing too. Inflation affects spending as well as savings. A pay rise below the inflation rate is effectively a pay cut.

Don't overreact

Inflation is a reason to invest money you won't need for years; it isn't a reason to take risks with money you might need soon. Moving your emergency fund into shares to "beat inflation" can backfire if markets fall just when you need it. Match the risk to the time frame. A useful test: if you might need the money within about three years, prioritise safety; if it is ten years or more away, prioritise growth, and in between, balance the two.

The Inflation Calculator shows what any amount will be worth in the future, and the Compound Interest Calculator shows how different returns grow. Compounding: The Quiet Superpower explains why time works both for and against you, and Where to Keep Your Savings covers the options.

References

• Malay Mail, DOSM: Malaysia's August inflation edges up to 1.9pc (18 September 2026)
• DOSM, Consumer Price Index, December 2025 (monthly inflation for 2025)
• DOSM, Consumer Price Index, August 2025 (food away from home)
• Bank Negara Malaysia, Monetary Policy Statement, 3 September 2026
• paultan.org, Bank Negara maintains OPR at 2.75% (inflation January–July 2026)
• KWSP, Know Your Benefits as a Member (real dividend target)