Market Waiting for Indonesia's September Inflation and August Trade Figures
Investors are eagerly waiting for the release of Indonesia's September inflation rate. Indonesia has been hit by high inflation since the government decided to increase prices of subsidized fuels at the end of June. High inflation limits its people's purchasing power and as domestic consumption accounts for about 55 percent of Indonesia's economic growth, it thus impacts negatively on GDP growth, particularly after Bank Indonesia raised its benchmark interest rate (BI rate) from 5.75 to 7.25 percent between June and September.
Due to Indonesia's interrelated internal issues (the current account deficit, weakening rupiah, higher inflation, and capital outflows) and external issues (weak global demand for Indonesian commodities, the looming end of the Federal Reserve's quantitative easing program and the US debt ceiling issue), various international and national (financial) institutions downgraded outlooks for economic growth of Indonesia in 2013. Generally, these projections now range between 5.3 and 6.0 percent (these institutions include the IMF, World Bank, Indonesian government and Bank Indonesia).
Both inflation and the trade balance are important indicators of the economy and are considered by investors before taking investment decisions. As such, investors are eagerly awaiting for tomorrow's (01/10) release of the September inflation rate and import & export figures. If inflation is limited (or deflation) and if the country's current account deficit shows an improvement, investors will be pleased. However, it remains doubtful whether there will be a significant increase in capital inflows if figures are good as the US debt ceiling issue and the looming end of the quantitative easing program (QE3) form bottlenecks and make investors very cautious of investing in emerging markets.
Indonesia's trade deficit set a new record high at USD $5.65 billion in the first seven months of 2013. The deficit was particularly caused by the country's oil & gas deficit (USD $7.6 billion), while the non-oil & gas sector posted a surplus of USD $1.9 billion. In the second quarter of 2013, the current account deficit stood at USD $9.8 billion, equivalent to 4.4 percent of GDP. Meanwhile, annual inflation rose to 8.79 percent in August, which constitutes the highest rate in the last four and a half years. The largest contributor to inflation is the price increase of subsidized fuels. Other factors are imported inflation due to the depreciating rupiah and high food prices.
Although Bank Indonesia recently released a statement that hinted at deflation in September, other institutions and analysts disagree and expect about 0.5 to 1.0 percent inflation instead as prices of various food products (particularly soy beans) remain high. Bank Indonesia and the Indonesian government expect inflation to reach 9.8 percent (yoy) at the year end.
| 2013 | Inflation |
| January | 1.03% |
| February | 0.75% |
| March | 0.63% |
| April | -0.10% |
| May | -0.03% |
| June | 1.03% |
| July | 3.29% |
| August | 1.12% |
| Total | 7.94% |
| 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | |
| Inflation (annual percent change) |
9.8 | 4.8 | 5.1 | 5.4 | 4.3 | 7.9¹ |
¹ year to date
Source: Statistics Indonesia