In a note today, MIDF Research said that renewed cost pressures on food and beverage (F&B) services could lead to a resurgence in the services PPI growth.
A renewed rise in cost pressures, it said, could potentially lead to re-acceleration in consumer price inflation in the coming months.
MIDF Research also said that the services PPI could re-accelerate due to upcoming policy changes by the government to address its constrained fiscal space.
This would be in the form of subsidy rationalisation related to items such as chicken, eggs, utilities and fuel.
Apart from subsidies rationalisation, the government is also seeking to raise the services tax to 8% next year, from the existing rate of 6%.
Yesterday, the statistics department reported a 1.4% rise in the country’s services PPI for the third quarter of this year (Q3 2023), the slowest growth recorded over the past six quarters.
Meanwhile, the consumer price index has similarly moderated to 2% in Q3 2023, from 2.8% in the previous quarter.
MIDF Research has forecasted headline inflation to accelerate to 3.5% in 2024, after moderating to an estimated 3% this year.
The moderation in the services PPI was mainly evident in the deceleration of the production cost of transportation services, as well as accommodation and F&B services.
The production cost for transportation services grew at a slower pace of 0.7% year-on-year (y-o-y) from 4.8% in Q2 2023, mainly attributable to slower inflation in the air transport services.
Meanwhile, the services PPI for accommodation and F&B services also moderated to a 4.6% growth y-o-y from 6.3% in Q2 2023.
On a sequential basis, however, the growth rate of the services PPI seems to be gathering pace.
It grew 0.4% quarter-on-quarter (q-o-q) in Q3 2023 from 0.2% in Q2 2023. This was due to faster cost increases in accommodation and F&B services, also arts, entertainment and recreation.
“We are still concerned about food inflation as shown by the continued cost increases in F&B services, which were the main contributor to the sequential rise in the overall services PPI from the previous quarter,” said MIDF Research.