Economic Update Indonesia: July Inflation & Manufacturing Activity
Statistics Indonesia (BPS) announced on Monday (01/08) that Indonesia's inflation rate reached 0.69 percent (m/m) in July 2016, considerably below analysts' forecasts. In fact, the 0.69 percent (m/m) pace is Indonesia's lowest July inflation rate since 2012. On a year-on-year basis, Indonesian inflation eased to a seasonally adjusted 3.21 percent (y/y), from 3.45 percent (y/y) in the preceding month. Meanwhile, Indonesia's manufacturing activity plunged unexpectedly in July.
BPS Chief Suryamin informed reporters that inflation in July 2016 was primarily caused by higher prices of staple food items and higher transportation costs (especially land and air transportation) due to a large increase in travelers amid the Idul Fitri celebrations.
Previously, analysts expected to see monthly inflation between 0.75 - 1.00 percent (m/m) in July as the prolonged rainy season (brought about by the La Nina weather phenomenon) disrupts the supply of several agricultural commodities in Indonesia (for example onions and chilies). The effects of La Nina are estimate to intensify in the months ahead.
Inflation in Indonesia:
| Month | Monthly Growth 2013 |
Monthly Growth 2014 |
Monthly Growth 2015 |
Monthly Growth 2016 |
| January | 1.03% | 1.07% | -0.24% | 0.51% |
| February | 0.75% | 0.26% | -0.36% | -0.09% |
| March | 0.63% | 0.08% | 0.17% | 0.19% |
| April | -0.10% | -0.02% | 0.36% | -0.45% |
| May | -0.03% | 0.16% | 0.50% | 0.24% |
| June | 1.03% | 0.43% | 0.54% | 0.66% |
| July | 3.29% | 0.93% | 0.93% | 0.69% |
| August | 1.12% | 0.47% | 0.39% | |
| September | -0.35% | 0.27% | -0.05% | |
| October | 0.09% | 0.47% | -0.08% | |
| November | 0.12% | 1.50% | 0.21% | |
| December | 0.55% | 2.46% | 0.96% | |
| Total | 8.38% | 8.36% | 3.35% |
Source: Statistics Indonesia (BPS)
Inflation in Indonesia and Central Bank Target 2008-2016:
| 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | |
| Inflation (annual % change) |
9.8 | 4.8 | 5.1 | 5.4 | 4.3 | 8.4 | 8.4 | 3.4 | |
| Bank Indonesia Target (annual % change) |
5.0 | 4.5 | 5.0 | 5.0 | 4.5 | 4.5 | 4.5 | 4.0 | 4.0 |
Source: Bank Indonesia
Manufacturing Activity Indonesia
Indonesia's manufacturing activity experienced an unexpected decline in July 2016. The Nikkei Indonesia Manufacturing Purchasing Managers' Index (PMI) tumbled to a reading of 48.4 last month, down sharply from the 23-month high recorded one month earlier (51.9). A marked fall in new business inflows led Indonesian manufacturing companies to curtail output at the fastest pace this year so far. This subsequently caused job losses and falling buying levels.
Markit Economist Pollyanna de Lima stated that the manufacturing industry of Indonesia is back in reverse gear as operating conditions plunged at the highest pace in 2016 so far. The decline in new orders caused manufacturers to curb production, employment, purchasing and stock levels. However, De Lima also detects a positive matter: given controlled inflation Bank Indonesia has room for more interest rate cuts this year.
Indonesia Manufacturing PMI:
