PETALING JAYA: With oil prices surging amid Middle East tensions, Kenanga Research has slightly raised its producer price index (PPI) forecast for 2026, although it still expects the deflationary trend to continue.
The revision comes as Malaysia recorded factory-gate deflation for the 12th straight month.
The research house said although Malaysia secured assurances regarding safe passage through the Strait of Hormuz, the broader supply chain disruptions will likely push factory-gate prices higher.
“Heightened geopolitical tensions involving Iran prompted us to lift our 2026 Brent assumption to US$80 per barrel, up from US$67 per barrel previously.”
The research house lifted its PPI forecast for 2026 from minus 2.2% to minus 1.9%. It added that a firmer ringgit should keep the overall PPI within the deflationary territory for the year.
Meanwhile, United Overseas Bank Ltd senior economist Julia Goh said: “PPI deflation is closely linked to oil prices, and history shows producer prices tend to follow energy costs with a lag.
As higher oil prices are expected to push the PPI up after a delay, Goh suggested that the current streak of producer price deflation in Malaysia might be ending soon.
“With Brent crude having rebounded sharply, the current PPI deflation cycle is likely nearing its turning point,” she told StarBiz.
On its consumer outlook, Kenanga Research said pass-through to consumer prices remains manageable, as the research house maintained its consumer price index forecast at 2.1%.
In this context, Goh also said: “Rising global oil prices should pass through to producer costs, suggesting that PPI deflation is unlikely to persist.
“From past cycles, higher oil prices typically mark the end of PPI deflation, and this episode should be no different.”
The research house said rising upside risks could eventually weigh on private consumption if producers begin passing higher input costs to households.
According to Kenanga Research, manufacturing drove Malaysia’s PPI decline, which was supported by weakening prices in the agriculture and utility sectors.
It noted that Malaysia’s PPI fell for a 12th consecutive month in February, dropping 3.4%, dragged by persistent weakness in the manufacturing and agriculture sectors that continued to weigh on factory-gate prices.
“On a monthly basis, the PPI returned to a 0.5% contraction in February, after a brief 0.1% rise in January as manufacturing prices slipped further.”
Detailing sector performances, Kenanga Research said the PPI continued to slump in the manufacturing sector, primarily reflecting double-digit declines in refined petroleum products, from minus 5.8% in January and down by 10.6% in February.
Additionally, it said food manufacturing saw a 5.2% drop.
Meanwhile, it further said agriculture, forestry, fishing and mining remained under pressure compared to the previous year.
