Update Indonesian Economy: Inflation, Trade Balance & Manufacturing

Suryamin, Head of Statistics Indonesia (BPS), said that the main factors that contributed to Indonesia’s high inflation pace in 2014 were the fuel price hike, volatile commodity prices, and higher electricity tariffs.

Although at the year-end inflation accelerated more than initially estimated, inflation should ease in the months ahead as the impact of higher subsidized fuel prices moderates (On 18 November 2014 subsidized fuel prices were raised by more than 30 percent). However, inflationary pressures will be triggered by higher LPG prices (for 12-kilogram canisters). Moreover, the government plans to raise electricity tariffs again. The dismantling of fuel subsidies (scrapping low-octane gasoline subsidy and using a fixed IDR 1,000 per liter diesel subsidy) per 1 January 2015, which implies that retail prices for gasoline and diesel have become cheaper (than prices under the subsidy mechanism) due to sharply falling global oil prices, is not expected to result in significant deflationary pressures in the months ahead.

 
Inflation in Indonesia:

Month	Monthly Growth           2013	Monthly Growth           2014
January	1.03%	1.07%
February	0.75%	0.26%
March	0.63%	0.08%
April	-0.10%	-0.02%
May	-0.03%	0.16%
June	1.03%	0.43%
July	3.29%	0.93%
August	1.12%	0.47%
September	-0.35%	0.27%
October	0.09%	0.47%
November	0.12%	1.50%
December	0.55%	2.46%
Total	8.38%	8.36%

^{Source: Statistics Indonesia (BPS)}

Inflation of Indonesia 2008-2014:

	2008	2009	2010	2011	2012	2013	2014
Inflation (annual percent change)	9.8	4.8	5.1	5.4	4.3	8.4	8.4

^{Sources: World Bank}

Trade Balance Indonesia November 2014

Indonesia’s trade balance showed an unexpected deficit of USD $425.7 million in November 2014 as exports declined 14.6 percent (y/y) to USD $13.62 billion, while imports fell 7.3 percent (y/y) to USD $14.04 billion. Although earlier estimations had already hinted at seeing another trade deficit in November, the USD $425.7 million deficit was more than expected.

Indonesia Balance of Trade (in USD million):

Cumulatively, Indonesia now has a trade deficit of USD $2.07 billion in the January-November 2014 period mainly caused by a wide trade deficit in the country’s oil & gas sector. This deficit is expected to decline after the government reformed its subsidized fuel price policy. This will then have a positive affect on the country's current account balance. In the third quarter of 2014, Indonesia's current account deficit was USD $6.84 billion, or 3.07 percent of the country’s gross domestic product (GDP).

Indonesia’s Manufacturing Activity December 2014

Indonesia’s HSBC manufacturing purchasing managers' index (PMI) fell to 47.6 in December 2014 from 48.0 in the previous month (a reading below 50 signals contraction in the manufacturing sector). This score constitutes a record-low for Southeast Asia’s largest economy. HSBC economist Su Sian Lim said that “the decline came as weak external demand placed a particularly large drag on manufacturing-sector conditions. However, while manufacturing-sector conditions were likely to remain soft in coming months, there were some signs that the PMI might be reaching a nadir. For instance, work backlogs fell at a slower pace than in the previous month.”

Indonesia’s manufacturing activity has now fallen for three consecutive months.

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