Why is Malaysia’s producer price index still contracting in February?

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Malaysia's Producer Price Index Contracts Due to Falling Input Costs

Malaysia's Producer Price Index (PPI) experienced a contraction of 1.6 per cent in February, a trend primarily driven by a sustained decrease in input prices within the manufacturing and agriculture sectors. This deflationary pressure has impacted factory inputs for 14 consecutive months, indicating a prolonged period of declining costs for producers.
Declining Input Prices in Key Sectors

The contraction in the PPI is largely attributable to the falling input costs across significant economic sectors. Specifically, the manufacturing sector's input prices have been in negative growth for fourteen consecutive months, highlighting a consistent reduction in production expenses. Similarly, the agriculture sector is experiencing a downturn in its input prices.
Impact on Food Product Costs

A notable contributor to the overall PPI contraction is the significant drop in input prices for food products. In February 2019, the input price for food items fell by 10.1 per cent year-on-year. Given that food constitutes a substantial portion of Malaysia's Consumer Price Index (CPI), this decline in producer costs for food is expected to influence headline inflation.
Sustained Low Inflationary Pressure Forecast

The continued decline in input prices is projected to keep headline inflation low throughout the first and second quarters of 2019. MIDF Research anticipates that the PPI will remain subdued in the first half of the year, partly due to capped retail fuel prices for RON95 and diesel at levels lower than the 2018 averages. The research firm forecasts the PPI to rise by 1.5 per cent for the entirety of the year, with producer price inflation averaging at the same rate.

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Why is Malaysia’s producer price index still contracting in February?

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