The Producer Price Index (PPI), a key barometer of corporate profitability, dropped 1.9% y/y in August bringing the average first eight months to -1.9% y/y. The August PPI data reflects a deflationary environment for eight consecutive months. Price pressures are weak overall, even with pockets of strength from finished goods. At this point, the key risk is not inflation, but more of dis-inflation and lesser of deflation. Hence, it allows room for BNM to ease its monetary policy in a move to support growth.

• The Producer Price Index (PPI), a key barometer of corporate profitability, dropped 1.9% y/y in August from -2.2% y/y in July, bringing the average first eight months to -1.9% y/y. The August PPI data reflects a deflationary environment for eight consecutive months.

• Details showed that factory gate prices remained weak in the manufacturing, mining and agriculture sectors. In August, the factory gate prices for manufacturing fell by 1.0% y/y. It has been in the deflationary zone for 20 straight months. Meanwhile, both mining and agriculture factory gate prices fell by 10.9% y/y and 0.9%y/y respectively. Mining has been in the negative region for the third consecutive month while agriculture stayed in the negative for 22 months straight.

• From the components side, prices for crude and intermediate materials remained in the negative growth region for 9 and 20 consecutive months respectively. In August, prices for crude and intermediate materials fell by 7.5% y/y and 1.7% y/y respectively in August. However, finished goods prices rose by 1.8% y/y in August. Finished goods prices have been on a rising trend since September 2018.

• Price pressures are weak overall, even with pockets of strength from finished goods. At this point, the key risk is not inflation, but more of dis-inflation and lesser of deflation. Hence, it allows room for BNM to ease its monetary policy in a move to support growth.

Source: AmInvest Research - 1 Oct 2019