America’s Inflation Is “Too High” Because of Oil. So Why Is Petrol Still RM1.99 in Malaysia? (2026)

The chair of the Federal Reserve said on 28 October that American inflation is “too high” and named the reason in the next breath: “Energy and related prices have moved higher again in recent weeks.” US petrol is up 34% in a year. Headline inflation is 3.7%. The Fed has raised interest rates once and two of its members want to do it again.

A Malaysian reader can be forgiven for asking the obvious question. The same oil shock is hitting the same world, Brent crude is about US$115 for everyone, and yet petrol at a Malaysian pump is RM1.99, inflation here is 1.8%, and the only debate at Bank Negara is whether to nudge rates up a quarter point next week. This article explains why a central bank cannot fix an oil price, what it is actually afraid of, and why Malaysia’s answer to the shock is so different, and what that difference costs.

📌 Key points

• US inflation is 3.7% but core inflation, which strips out food and energy, is 2.6%. Most of the excess is oil, and oil is up because war closed the Strait of Hormuz in March.
• Raising rates does not lower the price of crude. The Fed hikes to stop an oil shock spreading into wages, services and expectations, the “second-round effects” it fears from the 1970s.
• Malaysia absorbs the same shock in the government’s budget instead: petrol fixed at RM1.99 against a RM4.42 market price, electricity surcharges waived for most homes, a fuel subsidy near RM40 billion.
• The result is 1.8% inflation and a central bank leaning toward a hike for reasons of normalisation, not panic. The cost is a producer-price inflation rate of 12% waiting underneath.
• For gold the two forces pull against each other: oil-driven inflation says buy, a hawkish Fed says sell. Gold at about US$4,050 is well below its January record.

Two inflation numbers, one cause

The United States reports inflation two ways. Headline inflation counts everything; in September it was 3.7%. Core inflation leaves out food and energy, because they swing with weather and war rather than with the economy; it was 2.6%. The gap between the two is almost entirely oil: petrol prices rose 34% in a year after Brent went from about US$72 in February to above US$100 in March and roughly US$115 now.

Chair Kevin Warsh made the distinction himself. The Fed’s target is 2% on a measure called PCE, and he described the job as making sure “relative price changes in some sectors do not broaden out across the economy, and that inflation expectations remain… anchored.” Translated: oil going up is a change in one price. Everything going up because oil went up is inflation. The Fed can only act on the second.

Why a central bank cannot fix oil

Interest rates work by making borrowing dearer, which cools spending, hiring and investment. None of that reopens a shipping lane or drills a well. If the Fed raised rates to 6% tomorrow, Brent would still be set by tankers in the Gulf.

So why hike at all? Because of what happened the last time a central bank waited. In 1973 and again in 1979 oil prices spiked, and the Fed of the day treated the rise as temporary and kept money easy. Workers demanded higher wages to cover petrol, firms raised prices to cover wages, and by 1980 US inflation was above 13% with oil only part of the story. It took Paul Volcker, interest rates near 20% and a deep recession to break it. Every Fed since has drawn the same lesson: you cannot stop the first round of an oil shock, so you tighten early to stop the second.

That is the September hike and the October dissents in one sentence. Warsh added that Americans have lived with inflation “above the Committee’s objective for close to 6 years”, which is why the Fed is less willing to assume the latest spike will pass on its own.

How Malaysia takes the same shock

Malaysia feels the identical oil price. It just routes it through a different door.

	United States	Malaysia
Headline inflation (Sept 2026)	3.7%	1.8%
Core inflation	2.6%	1.7%
Petrol at the pump	up 34% in a year	RM1.99 under BUDI95, unchanged for a year; market price RM4.42
Who absorbs the oil shock	Households, then the Fed via rates	The federal budget: fuel subsidy about RM40 billion in 2026 against RM15 billion planned
Electricity	Market tariffs	Fuel surcharge waived for homes using up to 800 kWh until 31 December
Central bank’s problem	Stop inflation spreading	Decide whether to normalise rates while inflation is low
Hidden pressure	Expectations, wages	Producer prices up 12%, subsidy bill, deficit

Malaysia can do this for two reasons the US cannot copy. It produces oil, so a higher price raises government revenue that pays for the subsidy; the governor said in October that this leaves Malaysia “better shielded” than importers such as Thailand or the Philippines. And it fixes a price that most households pay, so the biggest single channel from crude to consumer is simply closed.

The cost is real and deferred. Producer prices, the cost of inputs to Malaysian factories, rose 12% in the year to September while consumer prices rose 1.8%. The subsidy runs at nearly three times its budget. The electricity protection expires on 31 December. Bank Negara’s own words are that pass-through is “lagged”, not absent, and the Finance Ministry expects inflation to pick up in early 2027. Our articles on Malaysia’s low inflation and on upstream cost pressure cover those numbers in detail.

What it means for a Malaysian trader

• Oil is now a Fed input. When Brent rises, the odds of a December hike rise with it, the dollar firms and gold comes under pressure. Watch crude the way you watch US inflation data.
• Gold is caught between two stories. Oil-driven inflation argues for gold; a Fed hiking to contain it argues against. That tug of war is why gold sits around US$4,050 after a record above US$5,500 in January. Gold needs the Fed to stop hiking before oil stops rising.
• The ringgit has a cushion. As an energy exporter with low inflation and a central bank leaning hawkish, Malaysia’s currency has held near 4.07 to the dollar through the shock. The risk to that is a subsidy change, which would lift inflation and complicate Bank Negara’s path.
• Date to watch. Bank Negara on 5 November, and any announcement about the RM1.99 price or the electricity waiver before year-end.

FAQ

Why does the Fed raise rates when oil goes up?

Not to lower oil, which rates cannot do, but to stop the oil shock spreading into wages, services and inflation expectations. The Fed learned in the 1970s that waiting lets a temporary price spike become permanent inflation.

What is the difference between headline and core inflation?

Headline counts every price; core excludes food and energy. In September 2026 US headline inflation was 3.7% and core 2.6%, so about a third of US inflation is energy.

Why is Malaysia’s inflation so much lower than America’s?

Malaysia fixes petrol at RM1.99 under BUDI95, waives electricity surcharges for most households and controls other essentials, so the oil shock is absorbed by the government budget rather than passed to consumers. The ringgit is also strong. Headline inflation was 1.8% in September 2026.

What does Malaysia’s approach cost?

A fuel subsidy running at about RM40 billion against RM15 billion budgeted, a 12% rise in producer prices that has not yet reached consumers, and a deficit target that depends on oil prices falling. The electricity protection expires on 31 December 2026.

Is high oil good or bad for gold?

Both. Oil-driven inflation supports gold, but a central bank hiking to contain it strengthens the dollar and real yields, which weigh on gold. In October 2026 the second force has been winning.

Summary

The Fed calls inflation too high because oil is up a third in a year after the Hormuz closure, and it tightens not to lower oil but to stop the shock spreading into wages and expectations, the mistake of the 1970s. Malaysia faces the same US$115 barrel and reports 1.8% inflation because the government fixes petrol at RM1.99, waives electricity surcharges and pays the difference from oil revenue. That shield is real, and so is its bill: a RM40 billion subsidy, 12% producer inflation and a protection scheme that expires at year-end. For traders, oil has become a Fed input, gold is squeezed between inflation and the Fed’s answer to it, and the ringgit’s cushion lasts as long as the subsidy does.

Disclaimer

This article is for education only and is not investment advice. Figures are from the Federal Reserve, the US Bureau of Labor Statistics, Malaysia’s Department of Statistics and Ministry of Finance, Bank Negara Malaysia and news reports dated as stated, and may be revised. Check the source before acting on any number.

Related reading

• Is Malaysia’s inflation really among the lowest in the region?
• Upstream cost pressure: what Malaysia’s 12% producer inflation means
• Why Malaysia subsidises petrol: the Penang BUDI95 case
• The Fed didn’t change rates, so why did gold fall? The two votes that explain it