• PPI dropped to -0.3% YoY in October.

• Manufacturing and Electricity & Gas Supply sectors led to a minor decrease.

• Intermediate materials, supplies, and components remained negative.

OVERVIEW

Malaysia's PPI fell by 0.3% in October after a 0.2% rise in September 2023. The decline was primarily caused by the manufacturing sector's PPI, which dropped by 0.7% last month (Sep: -0.8%). The decline was driven by Manufacture of coke & refined petroleum products (-8.8%), Manufacture of food products (-4.2%), and Manufacture of chemicals & chemical products (-2.0%). Similarly, the Electricity & gas supply index decreased by 0.5%. In the meantime, Agriculture, forestry & fishing rose by 3.8% (Sep: 3.2%), led by increases in Animal production (4.3%) and Growing of perennial crops (3.8%). Mining sector grew by 0.5% in October 2023, down from 6.9% in the previous month, led by Extraction of crude petroleum (5.6%). Additionally, the Water supply index surged by 1.0% (Sep: 0.9%).

On monthly basis, the PPI Local Production dipped by -0.3% in October 2023, following a 0.9% increase the prior month. With most sectors declining, Water supply stood out with a 0.8% increase. The Agriculture, forestry & fishing sector fell by -1.5%, impacted by the index of Growing of perennial crops (-2.5%). The Mining sector dropped by -1.3%, primarily due to the decrease in the Extraction of natural gas (-6.6%) index. Meanwhile, Manufacturing plunged by -0.1%, influenced by decreases in Manufacture of food products (-0.6%) and Manufacture of coke and refined petroleum products (-0.6%). The Electricity & gas supply sector also drop by -0.6% this month.

In PPI Local Production by stage of processing, Crude materials for further processing rose 5.3% in October 2023, slightly lower from the previous month (Sep: 5.4%). The Finished goods index stayed positive at 2.2% (Sep: 3.1%), driven by the Capital equipment component at 3.4%. Conversely, Intermediate materials, supplies & components fell by -3.0% (Sep: -2.7), led by Processed fuel & lubricants (-13.2%) and Materials & components for manufacturing (-2.7%).

OUTLOOK

In October, the PPI returned to deflation, declining by -0.3%, while the PPI local production from January to October 2023 marked a -2.0%. The contractionary trend of the PPI indicated further moderation in overall inflationary pressure. These figures correspond with Malaysia’s Consumer Price Index (CPI) in October (1.8%), indicating a gradual growth trend since April 2021. Despite subdued cost pressures, a string of extraordinary shocks has heightened geopolitical risks in commodity markets amid an already volatile global scenario. Pre-conflict, energy prices rose in the third quarter of 2023 due to OPEC's voluntary oil supply cuts. Despite the conflict, commodity prices have remained relatively stable, showing muted impact. Yet, history shows that escalating conflicts can significantly raise commodity prices, including oil. Moving forward, we foresee pressures on local producers to increase selling prices is limited given that the PPI inflation still remained below CPI inflation. However, we believe that the effects from weak ringgit and inflation in global food prices could also lead to stronger imported inflation in the coming months.

Source: BIMB Securities Research - 29 Nov 2023