• PPI declined by -3.4% yoy and -1.5 mom

• Manufacturing and agriculture, forestry & fishing sector drive the negative growth

• Broad-based declines in all stage of processing

• Negative PPI in regional economies

• Lower PPI in 2018

Malaysia’s PPI for local production declined by -3.4% yoy in February, following a - 1.2% decrease in the previous month. It marked two consecutive months of negative growth and continued to decelerate since July 2017. The decrease was mainly prompted by a decline in manufacturing (-2.6%) and agriculture, forestry & fishing (- 16.2%) whilst the mining sector grew at a slower pace (Feb: 3.1%; Jan: 8.9%). On the other hand, electricity & gas supply (Feb: 0.8%; Jan: -0.4%) and water supply (Feb: 1.2%; Jan: 1.0%) improved in February.

On monthly basis, PPI for local production declined 1.5% in February 2018. This was due to decreased in agriculture, forestry & fishing (-2.5%), mining (-6.3%), and manufacturing (-0.8%). Meanwhile, the index for electricity & gas supply and water supply expanded 1.1% and 0.1% respectively.

Meanwhile, the PPI for local production by stage of processing (SOP) was dragged down by all stages; crude materials for further processing (-5.8%), intermediate materials, supplies & components (-2.9%) and finished goods (-2.1%).

Likewise, the PPI for local production by SOP for February on monthly basis was fuelled by a declined in broad-based stage of processing; crude materials for further processing (-4.8%), intermediate materials, supplies and components (-0.2%), and finished goods (-1.4%).

Negative PPI in regional economies

Regionally, the PPI recorded a negative growth. Thailand’s PPI fell 1.9% yoy in February, following a 1.1% yoy drop in the previous month. This marked the third consecutive months of negative growth. Even though other regional countries have not released their PPI figure in February, the previous months’ trend show a negative growth in Singapore and Philippines. However, Indonesia’s PPI registered a growth, climbed to 3.2% yoy in January from 2.7% in December.

Meanwhile, US's PPI grew marginally higher at 2.9% yoy in February, compared with a growth of 2.6% yoy in the previous month. A rise in the cost of services offset a decline in the price of goods. In contrast, the PPI for China (Feb: 3.7%; Jan: 4.3%), Japan (Feb: 2.5%; Jan: 2.7%) and UK (Feb: 2.6%; Jan: 2.8%) moderated in February.

Lower PPI in 2018

Malaysia’s producer prices recorded the steepest decline since July 2016 mainly due to unfavourable base effects. Malaysia’s headline inflation is expected to taper down further in March as producer’s cost inflation contracted. Moving forward, as input cost inflation lower, we foresee the slowdown inflationary pressure will stay throughout the year. Meanwhile, the declining input cost inflation could further support industrial and business activities this year. Input cost inflation is expected to average lower this year (2018: 3.5%; 2017: 6.7%) amid unfavourable base effects.

Source: BIMB Securities Research - 2 Apr 2018