Low Indonesian Inflation Rate Expected to Continue into January 2014

Indonesia's stable macroeconomy is evidenced by low inflation, continued strong household consumption, and the improving economies of the USA and China. An improving global economy implies that the performance of Indonesia's exports has a better outlook. This will then improve the country's current account deficit, which will have a positive impact on the rupiah exchange rate.

A solid macroeconomy, particularly low inflationary pressures, also implies that Bank Indonesia is expected to keep its benchmark interest rate (BI rate) at 7.50% in January's Board of Governor's Meeting. Indonesia's inflation rate accelerated sharply between June and August 2013 after the government increased prices of subsidized fuels in late June 2013. Starting from September 2013, the pace of inflation has been under control although the final year-end figure of 2013 was still high at 8.38 percent (yoy).

Meanwhile, the Deputy Governor of Bank Indonesia, Perry Warjiyo, expects that Indonesia's current account deficit will ease to below 3 percent of the country's gross domestic product (GDP) in 2014. This development is expected to be caused by Indonesia's improving non-oil & gas exports this year amid an improving world economy (the forecast for global economic growth was revised up from 2.9 percent to 3.5 percent in 2014). Indonesia's wide current account deficit has been a major concern for investors and is partly to blame for the weak performance of the rupiah exchange rate, which depreciated significantly against the US dollar in 2013. The current account deficit hit a record high of USD $9.9 billion (4.4 percent of GDP) in the second quarter of 2013 but then eased to USD $8.4 billion (3.8 percent of GDP) in the third quarter of 2013, and is expected at 3.5 percent of GDP at the end of 2013.

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%
September	-0.35%
October	0.09%
November	0.12%
December	0.55%
Total	8.38%

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

^{Source: Statistics Indonesia}

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