MIDF Research stated the deflation of producer prices suggests local production costs are more influenced by external factors.
PETALING JAYA: The producer price index (PPI), which eased in September after seven straight months of growth, will not be impacted materially by the new minimum wage level and the rationalisation of the petrol subsidy next year.
The PPI, which measures price changes of goods at the producer level, fell by 2.1% year-on-year (y-o-y) in September according to the Statistics Department. Economists said the easing in PPI will help keep inflation in the country under control as well.
Geoffrey Williams, the founder and director of Williams Business Consultancy Sdn Bhd, said producer prices have been slowing since April, and were flat in August and are now falling.
“This puts less pressure on business costs and should help to hold down headline inflation to consumers.
“We do not expect the minimum wage to raise costs and prices too much because the increase was small and most people earn more than the minimum wage anyway.
We do not know how the RON95 subsidy rationalisation will be implemented and the aim is to make it as easy as possible with as little impact on prices as possible. For now we can expect business costs to be manageable into the foreseeable future,” he told StarBiz.
MIDF Research stated the deflation of producer prices suggests local production costs are more influenced by external factors such as movement in the commodity prices.
“In other words, domestic policy changes pose limited impact on the cost pressures, thus far.
“We maintain our expectation that selling prices are likely to remain stable given the decline in PPI.
“With inflation remaining under control, we expect Bank Negara will maintain the current overnight policy rate setting,” it stated in a report yesterday.
The new minimum wage of RM1,700 a month will begin from February next year while the rationalisation of RON95 petrol subsidy is likely to occur in the second half of 2025.
The PPI decline in September was primarily driven the mining sector (-16.1% y-o-y) led by reductions in the producer prices for the extraction of crude petroleum (-18.6% y-o-y) and natural gas (-7.9% y-o-y) as a result of lower commodity prices, MIDF Research stated.
Brent crude oil price dropped by 22.2% y-o-y to US$71.7 per barrel in September on bearish demand supply fundamentals.
PPI for the manufacturing sector deflated by 1.5% y-o-y in September largely driven by deflation in the manufacture of coke and refined petroleum products (-18.7% y-o-y).
PPI for electricity and gas supply eased to +0.3% y-o-y and for water supply decelerated slightly to +7.8% y-o-y from +8% y-o-y in August.
Producer prices for agriculture, forestry and fishing, however rose at 5.8% y-o-y in the month as compared to 2.7% rise in August.
September PPI for crude materials for further processing and intermediate materials, supplies and components fell by 9.5% y-o-y and 1.1% y-o-y respectively, data showed. PPI inflation for finished goods eased to 1.5% y-o-y from 3.5% y-o-y in August.
