Malaysia : Impact of paddy floor price on inflation
Malaysia’s inflation rate will see minimal impact from the proposed paddy floor price of RM1,800 per tonne, as rice has only a 0.8% weight in the CPI basket. Even with a 38.5% rice price hike, inflation may rise from 2.7% to 3.0%. Risks include currency fluctuations and climate change affecting global rice supply.
OVERALL inflation rate will see minimal impact even if the Malaysian government to adopt the proposed paddy floor price at RM1,800 per tonne.
Rice’s weightage is only 0.8% in the CPI basket.
Assuming 38.5% is reflected in the rice inflation rate, this will only move headline inflation rate from 2.7% to 3.0% (MOF 2025 CPI Forecast: 2.0-3.5%), according to a report by BIMB Securities.
It said its baseline scenario is 2.7% with assumption of RON95 to be retargeted by July 2025. If RON95 remains status quo throughout the year, average inflation rate to trend lower at 1.7% even with rice price spike by 38.5%.
“Nevertheless, the rice inflation rate will not fly that high with the proposed floor price given that almost half of rice supplied in the market are from imports,” it said.
In the final week of January 2025, the report noted that about 500 paddy farmers gathered in Putrajaya to demand for higher paddy floor price at RM1,800.00 per tonne, a 38.5% increase above current floor price.
The demand was prompted by declining profit margin and thin margin.
The report also noted the impact of currency movement and climate change risks on rice prices.
On rice price, it said movements of the Ringgit will impact rice prices as imported rice has bigger share in Malaysia.
“With potential narrowing interest rate differentials with major economies, MYR is predicted to appreciate better in 2025.
“However, change of tone by the Fed in particular will pose a downside risk to MYR as well as food prices in Malaysia,” it said.
It noted another downside risk was climate change, with flood, earthquake or drought in India and Thailand leading these countries to impose protectionist measures such as export ban.
“The short supply by India and Thailand will cause global rice price to spike and negatively impacting countries like Malaysia. With higher reliance on imported rice, Malaysia is more susceptible to currency movement and climate change risks,” it said.
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Source : The Malaysian Reserve
