PETALING JAYA: The consecutive decline in wholesale prices, as measured by the producer price index (PPI), signals that the domestic economy continues to face significant headwinds despite headline inflation – measured through the consumer price index (CPI) – stabilising over the year.
The August PPI, released by the Statistics Department yesterday, showed wholesale prices declined by 2.8% year-on-year (y-o-y), following a 3.8% decrease in July.
While the rate of price decline slowed in August, Malaysia’s PPI has been on a downward trend since March, pointing to a drag on economic performance.
Socio-Economic Research Centre executive director Lee Heng Guie said that while the continuous decline in the PPI reduces inflationary pressure due to lower production costs, the trend also signals slower economic growth as demand for goods and services is weaker.
Despite lower wholesale prices, headline inflation – which includes more volatile food and energy prices – continues to rise, albeit at a slower pace.
The CPI, which tracks headline inflation, has seen prices stabilising although core inflation has shown an uptick in recent months, driven by rising insurance and financial costs amid higher healthcare and medical expenses.
Economists expect Malaysia’s headline inflation to rise at a more stable pace this year as the economy slows down. Bank Negara Malaysia revised its economic growth forecast to between 4% and 4.8% this year, down from between 4.5% and 5.5% previously.
The central bank expects headline inflation to average between 1.5% and 2.3%, amid moderate demand and cost conditions, revised downward from 2% to 3.5% previously.
According to the Statistics Department, all stages of the production process tracked by the PPI recorded y-o-y decreases for August.
Crude materials for further processing fell by 0.8% after a 5.8% decrease in July, weighed down by a 1.1% decline in non-food materials.
Intermediate materials, supplies and components contracted by 3.1%, following a 3.7% drop in July, mainly due to an 8.6% fall in processed fuel and lubricants.
Finished goods decreased by 3.4%, compared to a 2.4% drop in July, mainly driven by a 5.6% downturn in capital equipment.
On a month-on-month (m-o-m) basis, crude materials for further processing increased by 1.6%, while intermediate materials, supplies and components, as well as finished goods, decreased by 0.2% and 0.5%, respectively.
Similar to July’s PPI, the August decline was mainly due to weakness in the manufacturing and mining sectors.
External uncertainties, brought about by US tariffs and shifts in the global supply chain of various industries, coupled with slower global economic growth, weighed on demand for manufactured goods and energy.
Manufacturing recorded a 4% decrease in the August PPI, similar to July, driven by a 14.9% contraction in the manufacture of coke and petroleum products and 7.7% decline in the manufacture of computer, electronic and optical products.
The mining sector fell by 3.4% after contracting 8.7% in July, dragged down by a 5.1% decline in crude oil extraction.
The agriculture, forestry and fishing sector saw a 7.3% rise compared to July’s 1.1% gain, contributed by an 11.6% jump in the growing of perennial crops.
Domestic utilities also saw gains, with electricity and gas supply up by 4.1% and water supply rising by 3.4%.
On a m-o-m basis, local PPI production increased by 0.1%, following a 0.3% gain in July.
The agriculture, forestry and fishing sector rose by 3.3%, compared with 2.5% in July, supported by a 5.1% increase in the growing of perennial crops.
For the utility sectors, electricity and gas supply as well as water supply also rose by 0.7% and 2.7%, respectively, while the mining sector decreased by 1.5% after posting no change in July.
This was due to a 2.3% decrease in extraction of natural gas and a 1.2% drop in crude oil extraction.
The manufacturing sector recorded a 0.2% decrease after declining 0.1% in July, weighed down by a 0.7% drop in the manufacture of coke and refined petroleum products and a 0.4% downtick in the manufacture of computer, electronic and optical products.
