PETALING JAYA: The projected acceleration in Malaysia’s Producer Price Index (PPI) has raised questions on whether higher costs will impact consumer inflation in the future.
The PPI surged to 10.7% in August this year – the fastest pace since June 2022.
It was driven by higher manufacturing and mining costs amid ongoing supply disruptions linked to tensions in the Middle East.
However, even with a rise in the PPI, experts said the consumer price pass-through is limited, supported by continued subsidies, regulated pricing mechanisms and relatively moderate domestic demand conditions.
Mercury Securities head of research Ahmad Ramzani Ramli said consumer inflation has barely moved and that he currently sees little evidence of a broad pass-through.
Ahmad Ramzani pointed out that while the gap between producer and consumer prices is large, it is mostly an upstream energy and commodity story at the moment.
“The risk is concentrated in food and utilities, and it would likely show up in the consumer price index (CPI) during the first half of financial year 2027 or 1H27 rather than the fourth quarter of financial year 2026 (4Q26).
“Malaysia’s CPI is heavily shaped by regulated fuel, electricity and utility tariffs, which dampen the link from producer prices to headline inflation in the short run,” he told StarBiz.
According to Ahmad Ramzani, the divergence of businesses absorbing costs will be sustainable as long as energy prices stay high and administered prices absorb the shock.
“The pattern you would expect is that margins are squeezed first where input costs make up a large share of overall costs, and the business sells mainly to domestic buyers who are price-sensitive.
“Export-orientated manufacturers, particularly in electrical and electronics, face less domestic pressure because their prices are set externally,” he said.
When asked on the duration that these businesses might be able to absorb costs, Ahmad Ramzani noted that this will be highly dependent on the cost-to-revenue share, contract terms and competitive position.
He added typically, commodity-linked contracts will pass costs on through with a lag, so a producer may hold prices for a few months before resetting.
“The base case is that the impact is limited in 4Q26 and becomes more visible in the first half of next year, provided energy prices stay elevated.
“Headline CPI at 1.8% leaves little room for a jump in one quarter, and the lag from producers to consumers is typically several months,” he said.
As for factors that could accelerate the pass-through of costs to consumers, Ahmad Ramzani said there are a few main ones like sustained high crude prices that feed into fuel-adjustment mechanisms and tariff revisions, as well as further electricity or utility tariff resets.
He added the depreciation of the ringgit will raise imported input costs and should businesses pass through costs while labour markets stay tight, then wage pressure will be a factor as well.
“Factors that could delay the cost pass-through include continued subsidies or price controls on fuel and essentials, a fall in global energy prices, which would reverse the mining-led PPI surge, and weaker domestic demand since domestically oriented output has already slowed,” Ahmad Ramzani noted.
Should the cost pass-through take place, he reckoned some of the first few sectors that will raise their costs are utilities and transport services, food and beverages, petroleum-lined goods, and construction materials.
“The least exposed would include export-priced manufacturing, particularly electrical and electronics, where Malaysian producers are price takers in global markets,” he said.
On the flip side, Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid explained the divergence between PPI and CPI is a reflection of the decision businesses have made to absorb some of the cost increases.
He said this has been at the expense of businesses’ profit margins, in order to preserve client relationships as well as market share.
“However, if higher costs become protracted, these businesses will eventually cave in and begin to pass on the additional costs to consumers,” he said.
According to Mohd Afzanizam, this is where the latest projection for inflation rate by the government was stated.
“It was projected that the CPI could rise between 1.8% to 2.8% in 2027 from an estimated 1.5% to 2.5% in 2026,” Mohd Afzanizam noted.
As for how long it might take for consumers to feel the pinch of higher prices, Mohd Afzanizam reckoned it could take at least two to four months.
“This is where competitive markets are also a factor that can help reduce the price inflation, as businesses are able to absorb in order to stay competitive in their industries,” he said.
Meanwhile, BIMB Securities Research said Malaysia remains resilient and is well-positioned to absorb near-term external shocks.
In a recent report, the research house noted that it expects Bank Negara Malaysia or BNM to leave the Overnight Policy Rate unchanged at 2.75% throughout 2026 and 2027.
“Furthermore, the forecast assumes further moderation in selected administered and services-related components during the 4Q26.
“This results in year-end inflation levels below current year-to-date averages,” the report stated.
