The impact of macroeconomic variables on crude palm oil price in Malaysia

Abstract

Crude Palm Oil (CPO) has been a cornerstone of Malaysia's economy for decades, serving as
one of the nation's most valuable export commodities. The persistent volatility of CPO prices
reflects the inherent uncertainty of commodity markets, necessitating informed decisionmaking
and robust risk management strategies. This dynamic environment requires continued
research to unravel the complex relationships between crude palm oil prices and key economic
variables, ensuring Malaysia’s palm oil industry remains competitive and resilient in a rapidly
changing global market. Thus, this study aims to examine the impact of macroeconomic
variables on crude palm oil price in Malaysia. The study employs structural vector
autoregressive (SVAR) model, spanning the period from 1971 to 2023. The findings suggest
that real GDP positively influences CPO prices, though the response was statistically
insignificant. Government expenditure showed a delayed positive impact on CPO prices. The
CPI's negative and significant relationship with CPO prices underscores the cost-push effects
of inflation. Similarly, the delayed negative impact of interest rates on CPO prices emphasizes
the need for careful monetary policy adjustments to support agricultural investment and
production.