• PPI exhibited a 1.9% drop in 2023, following a 7.8% growth in 2022

• Most sectors experienced a decline except for Agriculture and Water Supply sector

• The decline in intermediate materials, supplies, and components persisted

OVERVIEW

Malaysia's Producer Price Index (PPI), which measures the prices of goods at the factory gate, persisted in its decline, registering a negative 1.3% in December 2023 (Nov: -1.5%). The decline was primarily driven by the Mining sector, which contracted by 3.4 % in December 2023 (Nov: -4.7%). This decrease was influenced by a notable drop of 7.8% in the Extraction of natural gas subsector and Extraction of crude petroleum (-1.9%) index. The downward trend persisted in the Manufacturing sector, experiencing a decline of 1.5% in December (Nov: -1.4%). This decline was mainly attributed to a significant drop of 12.3% in the Manufacture of coke & refined petroleum products and Manufacture of food products (-4.2%) index. Similarly, the Electricity and Gas Supply sector recorded a decline of 0.6% in December, mirroring the negative performance observed in the previous month. Conversely, the Agriculture sector saw growth, with an increase of 1.3% in December (Nov: -0.4%). This positive shift was attributed to a notable rise of 6.3% in the subsector of Animal Production. Simultaneously, the Water Supply sector exhibited a modest increase of 0.4% (Nov: 1.0%).

On a monthly basis, PPI plummeted by negative 0.2% (Nov: 0.7%). Apart from the Agriculture sector, which remained constant, all other sectors witnessed a decline in the specified month. The Mining sector experienced a negative 1.6% decline (Nov: -4.7%), primarily influenced by a decrease in the Extraction of crude petroleum index, which dropped by 5.1%. Concurrently, the Manufacturing sector recorded a negative 0.1% decline in the specified month (Nov: -0.5%). This downturn was influenced by the index of Manufacture of coke & refined petroleum products, which decreased by 1.8% and Manufacture of food products (-0.4%). In the utility sector, both the Electricity & Gas and Water Supply indices registered contraction, with negative 0.3% and negative 0.4%, respectively.

In PPI Local Production by stage of processing, the Crude materials saw an increase of 0.4 % in this month (Nov: 0.3%), with the Foodstuffs & Feedstuffs index exhibited a notable increase of 4.3%. Meanwhile, the Finished Goods index rose by 1.1% in December (Nov: 1.7%), driven by a 2.0% increase in the Capital Equipment index. Conversely, Intermediate materials index observed a drop of negative 3.0% (Nov: - 3.4), owing to declines in the Processed Fuel & Lubricants (-13.8%) and Materials & Components for Manufacturing (-2.2%) indices.

OUTLOOK

PPI in December registered a decline of 1.3%, while the PPI local production for 2023 observed a drop of 1.9%, in contrast to a 3.5% increase in the same period the previous year. The persistent deflation in PPI corresponds with Malaysia’s Consumer Price Index (CPI) in December, which remained steady at 1.5% (Nov: 1.5%). Henceforth, we expect the cost passing effect to gradually decrease as cost inflation eases, in line with the CPI's cooling trend. We foresee low inflationary pressure to persist at least until 1H24 amid better domestic supply chain, stabilisation of interest rate levels and normalisation of global commodity prices. The roll-out of fuel targeted-subsidy may see higher retail fuel prices while the implementation of the progressive wage model will influence the inflation rate in 2H24. The downside risks are prolonged weakness in the ringgit and the volatility in commodity prices. The global supply chain pressure could surge following geopolitical tension in the Red Sea and bottleneck in Suez Canal which may heighten volatility in global energy supplies and prices.

Source: BIMB Securities Research - 30 Jan 2024