Malaysia's PPI likely to be in negative trajectory this year

The high debt, however, was largely denominated in ringgit, mitigating external risks for Malaysia.

PETALING JAYA: The country’s Producer Price Index (PPI) for this year is most likely to be in the negative trajectory, a trend which was last witnessed in 2015.

AmInvestment Research on Monday said it expect the potential PPI to most likely be in the negative trajectory due a stronger Malaysian ringgit against the US dollar which helps soften the cost of imports, stable commodity prices and a high base effect.

“Consumer inflation will be less vulnerable to cost-push pressures and more on demand pressures due to stable wage growth and a labour market that is supported by a firmer gross domestic product (GDP) outlook. 

“While Bank Negara projects consumer inflation between 2% and 3% for 2018, our forecast is 2.8% with our lower end at 2.5%,’’ it added.

PPI was in the negative trajectory in 2015 and this trend lasted until the third quarter of 2016.

The PPI fell for the second straight month. February’s PPI dropped much more than January’s with a dreading -3.4% year-on-year from -1.2% year-on-year in January. This brings the average for the first two months to -2.3% year-on-year. 

The poor PPI figures were due to the sharp drop from agriculture and manufacturing, down by -16.2% and -2.6% year-on-year respectively which more than offset the 3.1% year-on-year rise from the mining segment. 

Besides, the research house said it saw negative PPI reading from all the three components i.e. crude materials, intermediate materials and finished goods, down by -5.8%, -2.9% and -2.1% respectively.

With the PPI poised to stay weak, pressure on consumer inflation will be less impacted from the cost side apart. The focus on the cost side will be on fuel prices, it noted. 

“Much of the consumer inflation pressure will come from the demand side, underpinned by stable wage growth and a labour market which is being supported by the firmer economic outlook. 

“While Bank Negara is looking at a consumer inflation of between 2% and 3% for 2018, we are looking at 2.8% with our lower end at 2.5% for the year,’’ AmInvestment said.