Understanding Food Commodity Price Trends and Impact on the Consumer Sector
The recent increase in rice and sugar prices has once again triggered concerns about food inflation and security in the country. A major contributing factor can be attributed to imported food inflation, as Malaysia imports a significant amount of food commodities for consumption and animal feed needs. Compounding the issue, a confluence of extreme weather conditions causing low crop yields, export curbs, and geopolitical tensions are fuelling volatility in global food commodity prices. In determining how the Consumer sector will be affected by the trends in global food commodity prices, it is essential to grasp the importance and prevailing forces at play in the environment.
Food Commodity Prices are a Major Source of Inflation.
Post-COVID-19, global inflation experienced a dramatic surge, with the Food and Agriculture Organization of the United Nations (FAO) Food Price Index (FFPI) reaching its highest peak of 159.7 points in March 2022. Elevated food commodity prices, coupled with supply chain disruptions and pent-up demand, were among the main reasons identified pressuring the rise in inflation. Malaysia was also not spared from global inflationary pressures, with headline inflation in the country peaking at 4.7% in August 2022.
Food Inflation Impacting Consumer Sentiment and Consumption Spending.
Food makes up a major portion of the Malaysian Consumer Price Index (CPI) with Food and Non-Alcoholic Beverages group contributing the largest weight at 29.5%. It stands out as one of the main drivers of inflation in the country, primarily due to imported food inflation. Malaysia reportedly imports 65% of its food and agricultural products, amounting to about RM60bn and RM70bn in 2021 and 2022, respectively. We believe that imported food inflation significantly influenced the Consumer Sentiment Index (CSI) released by the Malaysian Institute of Economic Research (MIER), which dropped for two consecutive quarters to 90.8 points in 2Q23. A lower CSI indicates that consumers are turning pessimistic about their finances and the economy. Consumer consciousness regarding their consumption spending is increasing, and this has also been reflected in the softening of retail sales in the country.
Source: BIMB Securities Research - 14 Nov 2023
Created by kltrader | Apr 24, 2024