Indonesia Update: Inflation Up, Manufacturing Activity Contracts

In the first two months of 2015 Indonesia posted deflation on the back of falling fuel prices (made possible by the government’s decision to wind down generous fuel subsidies). However, last week the Indonesian government announced that prices of subsidized diesel and low-octane gasoline would be raised for April, a decision which resulted in some inflationary pressures. It is expected that these higher prices also impact on the country’s April inflation figure.

The central bank (Bank Indonesia) still expects inflation to ease to its target range of 3-5 percent (y/y) by the year end. The Indonesian government targets an inflation level of 5 percent (y/y) this year.

 
Inflation in Indonesia:

Month	Monthly Growth           2013	Monthly Growth           2014	Monthly Growth           2015
January	1.03%	1.07%	-0.24%
February	0.75%	0.26%	-0.36%
March	0.63%	0.08%	0.17%
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%	-0.44%

^{Source: Statistics Indonesia (BPS)}

Inflation in 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

^{Source: World Bank}

HSBC Indonesia Manufacturing PMI

Today it was also announced that manufacturing activity in Indonesia contracted, reflected by a score of 46.4 points in the March 2015 index - the lowest level since the launch of this index four years ago (a score below 50.0 signals contraction in the manufacturing industry). Indonesia has now seen its manufacturing activity contract for six consecutive months, causing serious concerns about economic growth of Southeast Asia’s largest economy.

Indonesia Manufacturing PMI:

Indonesia’s benchmark stock index (Jakarta Composite Index) was down 1.10 percent to 5,458.10 at 11:52 am local Jakarta time on Wednesday (01/04) as market participants absorbed the new economic data and engaged in profit taking after the strong gains over the past couple of days. Yesterday (31/03), the Jakarta Composite Index had climbed 1.47 percent.

However, Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) appreciated 0.31 percent to IDR 13,043 per US dollar on Wednesday (01/04).

Indonesian Rupiah versus US Dollar (JISDOR):

| Source: Bank Indonesia

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