KUALA LUMPUR (Dec 31): Malaysia’s latest producer price index (PPI) suggests the nation’s headline inflation will gradually increase starting 2020, said MIDF Research.
In a report today, MIDF pointed to the uptrend in the PPI for food product manufacturing, cost of crude materials and intermediate and capital goods in November.
“Despite the overall decline for manufacturing PPI, PPI for food product manufacturing posted lower negative growth of 0.5% y-o-y,” the research house said, adding that the improving trend has lasted for 11 months since December 2018.
“This could be due to a combination of two factors: Ringgit depreciation and our position as net food importer. As food items hold the biggest share in Malaysia’s CPI basket, we expect it to have a significant impact to the overall inflation,” it said.
Besides that, the cost of crude materials rebounded to positive territory after a year under contraction, while those of intermediate material supplies component are still declining but at the softest pace in nearly two years, MIDF said.
“As a 3-6 months leading indicator of price changes at the consumer level, the latest PPI number suggests that Malaysia’s headline inflation will gradually increase, starting 2020,” it added.
Overall, MIDF expects removal of domestic fuel price cap to push producer inflation to 2.9% in 2020, after a deflation which stood at 1.8% on-year for the Jan-Nov 2019 period.
“Based on the latest development, the targeted fuel subsidy which was scheduled to begin in January 2020 has been postponed but it is likely to come into effect by 2Q20, once the mechanism is ready,” it said.
Earlier, the Department of Statistics announced Malaysia’s producer cost rebounded to 1.2% on-year to 106.5 in November, following a full-year of deflation since November 2018.
The input price of manufacturing, which held around 80% of total PPI, staged a smaller decline of 0.7% on-year, compared with 1.3% in October.
Meanwhile, mining input price stood at a 13-month high of 6.4%, which MIDF partially attributed to higher crude oil price globally. The index of agriculture, forestry and fishing saw the biggest year-on-year increase of 16.9%, representing the highest pace since February 2017, while electricity and gas supply index rose 0.6%.