Malaysia's producer price index (PPI) growth eased to 0.3% year-on-year (y-o-y) in August, down from 1.3% in the previous month, according to data released by the Department of Statistics Malaysia (DOSM). This marks the slowest increase in six months.

MIDF Research (MIDF) noted that the moderation in PPI inflation can largely be attributed to falling commodity prices, particularly Brent crude oil, which saw a significant year-on-year decline of 7.3%, bringing prices down to USD78.88 per barrel. As a result, the mining sector's PPI experienced deflation of -8.3% y-o-y, a stark contrast to the +2.2% growth recorded in July, and its first decline in seven months. This also marked the steepest drop since July 2023.

Other sectors also saw a slowdown in PPI growth. The agriculture sector's PPI eased to 2.7% y-o-y (July: +3.4%), while the water supply sector's PPI growth slowed to 8.0% y-o-y (July: +9.0%). Conversely, producer prices for the manufacturing sector rose slightly faster, at 1.0% y-o-y compared to 0.9% in July. The electricity and gas supply sector saw an acceleration in PPI growth, climbing to 1.0% y-o-y from 0.3% in July.

Breaking down the PPI by the stage of processing, the index for crude materials for further processing dropped by 3.5% y-o-y, compared to a 1.5% rise in July. Meanwhile, the growth for intermediate goods slowed to 0.2% y-o-y from 0.6% in the previous month. However, the PPI for finished goods rose at its fastest pace in 17 months, climbing 3.5% y-o-y, driven by higher prices for finished capital goods and finished goods in the non-manufacturing sectors.

MIDF noted that the easing of PPI inflation indicates that recent policy changes, such as the diesel subsidy rationalisation, have had a limited impact on local production costs. With inflation remaining under control, MIDF does not foresee any adjustments to the Overnight Policy Rate (OPR) for the remainder of the year.

Source: MIDF
Title: Growth in Malaysia's producer price index down to 0.3% y-o-y in August