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PETALING JAYA: The rise in selling prices of domestic producers will continue to be underpinned by pressures from the supply side apart from growing demand, says MIDF Research.

The research firm said that businesses may pass on more cost increases to their consumers with the Producer Price Index (PPI) inflation remaining above Consumer Price Index inflation.

The country’s PPI local production, which measures the costs of goods at the factory gate, remained high in May 2022 with a growth of 11.2% year-on-year (y-o-y) compared with 11% y-o-y in April this year.

In particular, the mining and manufacturing sectors recorded faster PPI inflation at 20.6% y-o-y and 10.1% y-o-y, respectively.

Although the rate of PPI inflation for agriculture, forestry and fishing industry slowed to a 16.7% y-o-y increase, the double-digit increase highlights the ongoing upward pressures especially for food prices, noted MIDF Research.

“Factors such as rising import costs, shortages of labour and high commodity prices add to the inflationary pressures experienced by local producers.

“This is over and above other supply constraints and disruption in the global supply chain,” it added.

Meanwhile, in the United States, its consumer confidence slipped to its lowest in 16 months, where its consumer confidence index dipped to 98.7 in June 2022 from 103.2 in May 2022.

The research house noted this to be the second straight monthly decline and the lowest level since Feb 2021.

“American consumers expressed a more pessimistic view on future economic outlook as the expectations index fell to 66.4, the weakest reading since March 2013,” MIDF Research said.

As a forward looking indicator, the weaker consumer confidence points towards weaker momentum in the latter part of the year as Americans are more worried about inflation, particularly due to higher fuel and food prices.

Nevertheless, the perception on the present economic situation was relatively unchanged from the previous month, despite less favourable assessment on current business conditions and mixed views on the labour market, the research firm added.

On May 11, Bank Negara increased the overnight policy rate (OPR) by 25 basis points to 2%, its first hike since July 2020.

With the current high inflation environment, further hikes in OPR is expected to tame inflation.

In fact, many central banks are already raising their rates due to inflation pressures.