They said the current shock stems from disruptions to physical supply, particularly through the Strait of Hormuz, a vital artery for oil and critical industrial inputs.

The chokepoint does not affect only crude oil. Fertilisers, petrochemical feedstock, and other materials linked to Gulf supply chains are also caught in the disruption, limiting the flow of goods into global markets.

As supply tightens, fewer goods become available across sectors, from agriculture to manufacturing, creating real scarcity rather than just higher prices.

This scarcity then feeds into the broader economy. Fertiliser shortages affect food production, petroleum-based input raises the cost of packaging and consumer goods, while fuel constraints push up transport costs.

Even where goods continue to move, they do so at a higher cost. Shipping rates, insurance premiums and the general cost of doing business have risen sharply amid geopolitical uncertainty.

Dual inflationary effect

Economist Samirul Ariff Othman, an oil and gas analyst and adjunct lecturer at Universiti Teknologi Petronas, said this creates a “dual inflationary effect”.

The first effect is scarcity, where limited supply pushes prices higher. The second is the “cost-push” inflation, where businesses pass on rising input and logistics costs to consumers.

“In this environment, the constraint is physical supply,” he said. “You can’t solve that by injecting more money into the system.”

Samirul warned that a broad stimulus package risks making matters worse by increasing demand at a time when supply is already tight.

“When more money chases fewer goods, prices will rise faster,” he said, adding that a financial stimulus cannot increase the availability of oil, fertilisers or food.

Potential for fiscal leakages

The World Bank has expressed a similar view. Its lead economist for Malaysia, Apurva Sanghi, said recently that the country does not need a stimulus package for now, warning that introducing one would “only add to the inflationary impulse”.

That distinction is critical. In a demand-driven downturn, a cash stimulus can help revive spending. But in a supply-driven shock, economists say it risks intensifying price pressures without increasing output.

Malaysia’s position as a highly open economy further complicates matters. Much of what the country consumes depends on imports and global supply chains.

As a result, additional spending does not necessarily translate into higher domestic production. Instead, it often flows outwards to pay for more expensive imports, especially when goods are in short supply, raising concerns about fiscal leakages, a long-standing issue in previous stimulus exercises.

Economist Geoffrey Williams has cautioned against repeating the mistakes of Covid-era stimulus packages, which were marked by leakages, inefficiencies, and cases that are still being addressed.

In the current environment, those risks are amplified. With global prices elevated, more public funds would be needed to secure the same volume of imports, while limited supply means those goods may not even be readily available.

Risk of doing too little

At the same time, policymakers are warning against doing too little.

Ipoh Timor MP Howard Lee acknowledged that concerns about inflation from poorly designed stimulus packages are valid, particularly when they involve broad-based cash injections or blanket transfers.

However, he said, the priority must be to ensure that demand adjustments do not spiral into outright economic damage.

“The issue before us is not whether to flood the economy with money,” he said in a statement on April 11.

“The issue is whether we allow necessary demand suppression to become outright demand destruction.”

Lee warned that if costs rise beyond a certain point, key economic activities could begin to shut down – fishermen may stop going out to sea, lorries may cut trips, farmers may reduce planting, and critical services may slow or halt altogether.

“If strategic operators stop operating, output crashes, supply chains tighten further, and inflation can worsen rather than improve,” he said.

Targeted support

Lee said this is why he is proposing a more targeted, output-based support framework, where assistance is tied directly to essential production and services.

He said such measures could include linking support for fishermen to actual landings, assistance for logistics firms to delivery of essential goods, and aid for farmers to output levels rather than blanket input subsidies.

He said the aim is to protect critical output such as food production, logistics, healthcare, and public transport, without distorting markets or fuelling inflation.

Economists broadly agree that support is necessary, but stress that it must be tightly targeted.

Direct assistance to vulnerable households can help cushion the impact of rising prices without significantly increasing overall demand. Similarly, targeted support for sectors most affected by supply disruptions may be more effective than blanket measures.

At the same time, attention is shifting towards strengthening supply resilience, including diversifying import sources, improving logistics capacity, and reducing reliance on volatile global supply routes.

The broader message, economists say, is that the nature of the crisis has changed.

“This is not a financial crisis where demand has collapsed,” Samirul said. “This is a supply shock. If we respond with demand tools, we risk making inflation worse.”

With global disruptions expected to persist and supply chains taking time to normalise, policymakers face a narrowing path.

For now, the warning is clear: in a market where goods are limited and costs are rising, more money may not ease the pressure, and could instead deepen it.