UOB’s Goh said the drop seen in Malaysia’s PPI for the last 10 consecutive months was driven largely by cost factors, rather than a broad demand slowdown.
PETALING JAYA: The declining trend of the country’s producer price index (PPI) may be near its trough, with a gradual normalisation likely over the course of this year, says an economist.
December 2025’s PPI slipped further by 2.7% year-on-year (y-o-y), following a 1.8% y-o-y and 0.1% y-o-y decrease in November and October, respectively.
By sector, the agriculture, forestry and fishing industry recorded the steepest fall, easing by 12.1% y-o-y in that month.
This was followed by the mining and manufacturing sector, which posted larger declines compared with November, sliding by 8.8% and 1.3% y-o-y, respectively.
Looking ahead, UOB senior economist Julia Goh cautioned the PPI trend could shift if commodity prices continue rising amid heightened geopolitical tensions.
“Strong investment in artificial intelligence-related infrastructure and data centres has tightened supply for chips and tech components, creating shortages for consumer electronics and pushing up expected prices for personal computers and smartphones in 2026,” she told StarBiz.
Brent crude oil price is up by nearly 9% year-to-date, driven by supply worries following a winter storm that disrupted US crude production and exports.
Additional factors, including uncertainties over Russian and Venezuelan shipments to Asia and geopolitical tensions in the Middle East, have added a risk premium amid uneven global oil inventories.
At the same time, Goh warned a moderation in China’s export deflation and stronger regional demand could also tilt inflation pressures higher.
“That said, a stronger ringgit will help cushion some of these cost pressures, especially for imported inputs and intermediate goods,” she said.
The ringgit continues to be Asia’s best performer against the US dollar, outperforming major currencies including the Japanese yen and Singapore dollar.
The ringgit ended at another fresh high in over seven years against the greenback, climbing to the 3.9195 level yesterday.
UOB’s Goh said the drop seen in Malaysia’s PPI for the last 10 consecutive months was driven largely by cost factors, rather than a broad demand slowdown, especially given last year’s resilient economic performance.
“The steepest pullback is in the mining sector, where softer global prices for crude oil and natural gas have weighed heavily.
“This has fed through to lower input costs for manufacturers, contributing to the contraction in the manufacturing PPI,” she said.
While the transmission from producer prices to consumer prices is neither immediate nor one‑for‑one, Goh said the deflation seen in mining and manufacturing points to a softer pipeline of cost pressures, which should help keep the consumer price index contained.
“That said, services inflation – being more wage and demand-driven – will see a more limited impact,” she said.
In terms of stage by processing, crude materials for further processing posted the biggest fall, by 8.3% y-o-y.
Meanwhile, intermediate materials, supplies and components and finished goods were down by 1.6% y-o-y and 0.7% y-o-y.
On a month-on-month basis, the PPI local production recorded a marginal decline of 0.2% in December 2025 (November 2025: 0.3%).
