The Edge Markets (01/10/2019) - KUALA LUMPUR: MIDF Amanah Investment Bank Bhd foresees the producer price deflation widening this year to -1.8%, from -1.1% last year.

“Up to Aug 19, producer inflation averaged at -1.9% mainly due to the RON95 price cap, lower than last year’s average price. We foresee the number improving slightly buoyed by increasing costs from the food component,” it said in a note yesterday.

Earlier, the Department of Statistics Malaysia announced that the Producer Price Index (PPI) for local production decreased 1.9% in August compared with that in the same month of 2018.

Department of Statistics Malaysia chief statistician Datuk Seri Dr Mohd Uzir Mahidin said the mining index declined 10.9%, followed by the water supply (-2.6%), manufacturing (-1%), and agriculture, forestry and fishing (-0.9%) indices. These partly offset the 2.2% increase in the electricity and gas supply index, he said.

On a monthly basis, the PPI for local production in August grew 0.2% compared with that in July. The agriculture, forestry and fishing index registered the highest growth of 5.2%, followed by the electricity and gas supply (0.4%), and water supply (0.2%) indices.

In contrast, the mining index decreased 2%, while the manufacturing index was unchanged.

MIDF noted the PPI for food product manufacturing registered a lower negative growth of -6% year-on-year (y-o-y), its lowest fall since November 2017, due to the ringgit’s depreciation and Malaysia being a net food importer.

As food items hold a majority share in Malaysia’s consumer price index (CPI), MIDF expects the improvement to partly offset a weak inflation caused by a significant decline in the transport component in the CPI basket.

“However, low input prices would somehow support Malaysia’s industrial activities. The costs of crude materials and intermediate materials’ supplies and components remain in contraction mode but at slightly lower negative rates.

“Meanwhile, capital equipment PPI growth continued trending upwards since April to the latest 3.9% y-o-y,” said MIDF.

The research house said the latest PPI number suggested Malaysia’s headline inflation would likely stay low for the second half of 2019 (2H19).

“However, consumer inflation in 2H19 will be partly influenced by the low base effect resulting from a tax holiday period last year,” it added.

Noting declining global oil prices, MIDF said most of the key economies’ producer inflation in August also remained in negative territory at a higher rate.

“Japan’s PPI growth declined further to -0.9% y-o-y, the biggest drop since December 2016 due to a sharp decline in cyclical industries such as oil at -9.9% y-o-y (from July’s -8.5%).

“The US’ PPI growth contracted further to -2% y-o-y, the biggest decrease since September 2016. Meanwhile, China’s PPI maintained at -4.7% y-o-y, unchanged from the previous month,” it said.