• PPI dropped by -1.5% YoY in November. 
• All sectors saw a contraction except for Water supply, which rose by 1.0%.
• Intermediate materials, supplies, and components stayed in negative.

OVERVIEW

Malaysia's Producer Price Index (PPI), which measures the prices of goods at the factory gate, declined further by 1.5% in November (Oct: -0.3%). The decline was primarily caused by all sectors, except for Water supply which rose by 1.0% for the month. The Mining sector had the significant drop at -4.7% (Oct: 0.5%), mainly caused by declines in Extraction of natural gas (-15.2%) and Extraction of crude petroleum (-1.1%) indices. Manufacturing fell by -1.4% (Oct: -0.7%), driven by drops in coke & refined petroleum products (-11.7%) and food products (-4.5%). Concurrently, Agriculture sector shifted to a 0.4% decrease (Oct: 3.8%), mainly because of a 1.5% drop in the growing of perennial crops. The Electricity & gas supply sector also contracted by 0.6% (Oct: -0.5%).

On a monthly basis, the PPI Local Production plunged by 0.7% in November 2023, a further drop from the 0.3% decrease in the previous month. The Mining sector dipped by -4.7%, with Extraction of crude petroleum (-5.7%) and Extraction of natural gas (-1.2%) indices both experiencing declines. Simultaneously, Manufacturing declined by 0.5%, driven by decreases in Manufacture of coke & refined petroleum products (-3.9%) and Manufacture of food products (-0.4%). The Electricity & gas supply sector also dropped by -0.2% this month. Conversely, the Agriculture sector rose by 1.3%, led by Growing of perennial crops (2.6%), while the Water supply sector saw a slight increase of 0.2%.

In PPI Local Production by stage of processing, the Crude materials saw a muted growth of 0.3% (Oct: 5.3%), notably driven by a 1.9% rise in the Foodstuffs & feedstuffs index. The Finished goods index stayed in positive area at 1.7% (Oct: 2.2%), primarily boosted by a 2.9% increase in Capital equipment. Contrarily, Intermediate materials index fell 3.4% (Oct: -3.0%) due to drops in Processed fuel & lubricants (-14.7%) and Materials for manufacturing (-2.6%).

OVERVIEW

November witnessed a further 1.5% drop in the PPI, while the PPI local production from January to November 2023 reported a negative decline of 1.9%, contrasting with 8.1% growth experienced during the equivalent timeframe in the previous year. The continued deflation in PPI aligns with Malaysia’s Consumer Price Index (CPI) in November, which stood at -1.5% (Oct: -1.8%). Moving forward, we foresee low inflationary pressure to persist at least until 1H24 amid better domestic supply chain and stabilisation of interest rate. The downside risks for Malaysia’s prices - both PPI and CPI - in 2024 are prolong weakness in ringgit and surge in petrol & diesel prices following subsidy rationalisation efforts. Albeit the CPI is currently showing a cooling trend, we should not overlook the likelihood of firms transferring higher business costs to end-consumers, potentially leading to a future rise in inflation. Key upside risks to watch for inflation in 2024 include volatile commodity prices while other domestic upside risks which is expected to heighten Malaysia's inflationary pressures include the confluence of the government's subsidy rationalisation plan, the implementation of the progressive wage model and an increase in services tax.

Source: BIMB Securities Research - 28 Dec 2023