• All sectors but the manufacturing sector contributed a modest gain

• Every index in the stage of processing witnessed a surge, except for Intermediate materials, supplies, and components

OVERVIEW

Malaysia’s Producer Price Index (PPI) rebounded to 0.2% YoY in September 2023 as compared to a negative 2.2% in August 2023. The positive growth was primarily due to the base effect and elevated prices of primary commodities. All sectors, with the exception of manufacturing, contributed to the slight increase. The agriculture, forestry, and fishing sector increased by 3.2% increase (Aug: -1.0%) and was attributed to the rise in Animal production by 5.7% and Growing of perennial crops by 3.3%. Concurrently, the Mining industry grew by 6.9% (Aug: -3.8%), driven primarily by the Extraction of crude petroleum (8.1%). Both utility sectors registered growth although the increased in Water supply moderated to 0.9% (Aug: 2.5%), and the Electricity and gas supply sector increased by 0.5% (Aug: -0.1%). On the other hand, the contraction in the manufacturing sector’s PPI persisted for the 5th month albeit with a slower fall of -0.8% (Aug: -2.3%). This decline was influenced by the Manufacture of coke and refined petroleum products, (Sep: -7.1%; Aug: -13.4%) and the Manufacture of food products (Sep: -5.3%; Aug: -7.6%).

On monthly basis, PPI for local production increased by 0.9%, a significant rise compared to August 2023 when it remained stagnant at 0.0%. The Mining sector experienced a 5.6% increase, primarily driven by the Extraction of crude petroleum, which rose by 6.6%, and the Extraction of natural gas, which increased by 1.9%. After experiencing negative changes since May 2023, the Manufacturing sector saw a slight increase of 0.8%, which was attributed to the Manufacture of Refined Petroleum Products (6.1%). The Electricity & gas supply also saw a slight increase of 0.4%. In contrast, the Agriculture, forestry, and fishing sector declined by -1.4%, with the Growing of perennial crops index showing a drop of -2.3%. Also experiencing a decline this month of -0.4% was the water supply industry.

When considering the PPI Local Production by stage of processing, the Crude materials for further processing index saw a notable increase of 5.4% in September 2023, a significant improvement compared to the previous month when it had decreased by -4.0% in August 2023. The Intermediate materials, supplies & components index declined by a negative 2.7%, showing a slight improvement from the negative 3.7 % in August 2023. In contrast, the Finished goods index remained positive, with a growth of 3.1%.

OUTLOOK

The PPI remained low in September (+0.2%) while the PPI local production for the period of January to September 2023 recorded a -2.1% (9M22: +9.2). The contractionary trend of the PPI indicated further moderation in overall inflationary pressure. However, it is worth to monitor the persistent increase in food price pressure and uptick in global energy prices following geopolitical tensions. Although cost pressures have subsided, we are cautious on the near-term outlook given with the escalation of the Middle East conflict. The ongoing escalation of the Israel-Gaza conflict has heightened concerns and led to oil prices becoming more volatile. Additionally, unfavorable weather patterns and the scarcity of agricultural supplies brought on by the conflict between Russia and Ukraine are predicted to contribute to the instability of commodity prices in 2023. While the Consumer Price Index (CPI) in Malaysia has been on a downward trend, the Producer Price Index (PPI) is on the rise. The recent increase in global commodity prices, a weakened ringgit, heightened geopolitical tensions, and extreme weather conditions may exert additional upward pressure on prices in 4Q23. This situation raises the possibility that end consumers could be affected, as producers may pass on the increased costs to them. Nevertheless, we don't foresee a substantial impact, mainly because of the subsidies that is in place in Malaysia.

Source: BIMB Securities Research - 27 Oct 2023