PETALING JAYA: Producer prices returned to growth in March 2026 after a year of contraction as rising global energy costs lifted upstream prices, but an economist warns that the rebound could feed into broader inflationary pressures.
The producer price index (PPI), which measures prices at the factory gate, rose 1.1% year-on-year (y-o-y) in March, reversing a 3.4% decline in February, according to the Statistics Department.
On a month-on-month (m-o-m) basis, the index surged 4.1%.
Economist Yeah Kim Leng said the March reading reflected early spillovers from higher global energy prices following geopolitical tensions, particularly the US-Iran conflict that began at the end of February.
While describing the 1.1% increase as “very low”, he pointed to the monthly gain as a more important signal of underlying pressure.
“This indicates that price increase momentum has risen sharply,” he told StarBiz.
By stages of processing, price increases were most pronounced in crude materials for further processing, which rose 9.8% y-o-y and 16.4% m-o-m.
Prices for intermediate materials, supplies and components declined 1.3% y-o-y but rebounded 1.7% m-o-m, while finished goods edged down 0.1% y-o-y but rose 0.7% m-o-m.
Yeah said fuel-related components were the most concerning, noting that cost pressures in energy inputs had accelerated sharply amid global disruptions.
He added that producer cost pressures were already visible across the economy, with input costs for manufacturers and producers estimated to have risen by an average of 10% to 30%.
He warned that this could mark only the beginning of a broader uptrend in producer prices.
“We should expect the PPI to continue on this upward trend, and likely to hit the high single digit,” he said.
“If the conflict is prolonged, it could even enter double-digit territory in the coming months, especially in the second half of the year.”
He added that higher PPI will eventually filter through to consumers, leading to upward pressure on the consumer price index (CPI), depending on demand conditions and market competition.
Yeah said pricing power differs widely across industries, with essential goods more likely to see full cost pass-through as consumers have limited choice.
“In that context, essential products tend to see stronger pass-through, while discretionary products face weaker pass-through effects due to demand sensitivity and competition.”
He also pointed to inventory levels and price elasticity as key factors shaping how costs are transmitted.
However, he said that weakening demand could cap the extent of cost pass-through amid signs of rising economic caution.
“But it is important to note that demand, amid increasing uncertainties and a more cautious consumer outlook going forward, is already showing early signs of stress filtering through, such as factory shutdowns and rising retrenchments.
“These are early signs that demand may weaken or moderate. We are likely to see a moderation in demand, and that will be very important in helping to cap any pass-through effects.”
In Malaysia, 4,708 workers had been retrenched in the first 16 days of April, on top of 5,900 in March.
By sector, PPI for the mining industry recorded a 26.5% increase in March, supported by a 38.5% rise in crude petroleum extraction.
The water supply PPI rose 11.3%, while electricity and gas supply increased 9.6%.
However, PPI for the manufacturing sector fell 0.8% and the agriculture, forestry and fishing sector declined 5.6%.
Despite the rebound in March, Malaysia’s PPI remained in contraction in the first quarter of 2026, falling 1.7% y-o-y after a 1.5% decline in the previous quarter.
The quarterly decline was mainly driven by the agriculture, forestry and fishing sector, which contracted 7.5%, and manufacturing, which fell 1.7%.
These declines were partially cushioned by gains in mining, which rose 1.6%, as well as utilities – with water supply up 11.1% and electricity and gas increasing 6.5%.
Yeah attributed the earlier decline in agriculture-related prices to lower input costs, noting that the strengthening ringgit had made imported inputs cheaper in local currency terms. He cited softer demand conditions that had weakened pricing power among producers in the sector.
However, he warned that cost pressures could rise again following global supply disruptions.
“Previously it was not so impacted, but now after this outbreak of war, shortages of urea and imported feedstock will likely lead to higher food prices,” he said.
He added that higher upstream costs, including transportation, insurance, freight and logistics, are also expected to feed into food inflation. “We have to brace for an escalation in consumer prices,” he said.
However, he described the expected rise as largely a one-off adjustment to the shock rather than a sustained inflation cycle.
“We can expect a year with a high average CPI and then it will taper off, given that demand is likely to weaken and that would depress inflationary pressure.”
He estimated that inflation could rise to between 4% and 5% this year under a scenario of sustained supply-side pressure, referencing previous oil shock episodes as a guide.
“This will be manageable in the case of Malaysia because we are starting from a low inflation environment, and demand is likely to moderate given uncertainties and the impact on employment and wages,” he said.
He added that this would help prevent a wage-price spiral, where rising wages and prices reinforce each other.
On monetary policy, he said the central bank is unlikely to raise interest rates at this stage given the weak demand backdrop.
“If there is an inflation threat then we may expect rates to be hiked to dampen inflationary expectations,” he said.
