According to the central bank of Indonesia, inflation may reach around 8 percent (year-on-year) by the end of 2014 as a result of the higher subsidized fuel prices. In the early hours of Tuesday (18/11), subsidized fuel prices (gasoline and diesel) were raised by more than 30 percent in an attempt to reallocate government funds to more productive sectors as well as to curb the country’s wide current account deficit. Peaks in Indonesia’s inflation usually correlate with administered price adjustments.

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A total of 29 Indonesian provinces have already confirmed their new provincial minimum wages for the year 2015. Overall (excluding the four remaining provinces), the average Indonesian minimum wage rises 12.77 percent (y/y) in 2015. Although this growth is considerable, it is smaller than Indonesia’s minimum wage growth in 2014 (19.10 percent y/y). The highest minimum wage growth occurred in the province of Bangka Belitung (28 percent), while the lowest wage increase was in Riau (0.58 percent).

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International credit rating agency Moody's Investors Service is positive about the subsidized fuel price hike that was conducted by the government of Indonesia on Monday (17/11) as it shows commitment of the government to implement reforms that support the strengthening of the economy, such as curbing Indonesia’s fiscal and current account deficits. Moody’s estimates that these developments are positive for the country’s sovereign rating (now at Baa3/stable) as well as for state-owned energy firm Pertamina (Baa3/stable).

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Main news headlines in Indonesia still cover the higher subsidized fuel prices implemented starting from the early hours of Tuesday (18/11). The previous evening, Indonesian President Joko Widodo had announced that prices of subsidized gasoline and diesel were to be raised by over 30 percent, immediately leading to long queues at local gas stations as well as public outcry as people’s purchasing power will diminish. Analysts and economists, however, agree that this move is correct and can lead to structurally higher GDP growth.

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The central bank of Indonesia decided to raise its key interest rate (BI rate) by 25 basis points from 7.50 percent to 7.75 percent on Tuesday (18/11) in a response to the subsidized fuel price hike. One day earlier, Indonesian President Joko Widodo had announced that prices of subsidized gasoline and diesel were to be raised by more than 30 percent starting from midnight in an effort to create more fiscal space for economic and social development. This move is expected to result in accelerated inflation in Southeast Asia’s largest economy.

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Indonesian President Joko Widodo announced yesterday evening (17/11) that prices of subsidized fuels will be raised by over 30 percent starting from midnight in an effort to reduce state expenses on non-productive matters. Low-octane gasoline (premium) will now cost IDR 8,500 (USD $0.70) per liter, while diesel now costs IDR 7,500 (USD $0.62) per liter. This sudden announcement immediately led to long queues at local gas stations as people still had three hours to enjoy cheaper fuel rates.

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After weeks of uncertainty, Indonesian President Joko Widodo announced on Monday (17/11) that prices of subsidized fuels (gasoline and diesel) are to be raised by IDR 2,000 (USD $0.16) per liter starting from midnight. Gasoline (premium) is to be raised from IDR 6,500 to IDR 8,500 per liter, while diesel will be raised from IDR 5,500 to IDR 7,500 per liter. Earlier it was speculated that an IDR 3,000 per liter price hike would be announced. However, as global oil prices have declined sharply, this was considered an unnecessary burden for the people.

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After speculation started to rise that Indonesia would perhaps not raise prices of subsidized fuels (gasoline and diesel) in November as recent declining global oil prices have managed to somewhat relieve the government’s budget deficit, Indonesian Finance Minister Bambang Brodjonegoro said over the weekend that the Indonesian government is still eager to raise these prices within a couple of weeks. However, he added that the price hike will be less than IDR 3,000 (USD $0.25) per liter.

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The central bank of Indonesia (Bank Indonesia) announced today (after the Board of Governors’ meeting) that it keeps the benchmark interest rate (BI rate) at 7.50 percent. The lending facility rate and the deposit rate are maintained at 7.50 percent and 5.75 percent, respectively. Agus Martowardojo, Governor of Bank Indonesia, said that interest rates were maintained as the country’s current account deficit narrowed to 3.07 percent of gross domestic product (GDP) in the third quarter of 2014.

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Indonesian consumers are concerned about the looming subsidized fuel price hike this month according to the latest survey of Nielsen, a global information and measurement company. Based on the Nielsen Global Survey of Consumer Confidence and Spending Intentions (covering the third quarter of 2014), 28% of respondents said that higher prices of subsidized fuels are among their top two main concerns. In the previous survey (which covered Q2-2014), the subsidized fuel price hike was not even mentioned among the top five concerns.

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Although initially the benchmark stock index of Indonesia (known as Jakarta Composite index or IHSG) fell after the market responded to today's release of Indonesia's April trade deficit and May inflation, the index ended in the green zone due to foreign net buying and general positive Asian indices (influenced by higher stock indices on Wall Street at the end of last week). Particularly Indonesia's big cap stocks in the miscellaneous industry and consumer sectors were popular as these were relatively cheap after having tumbled at the end of last week.

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Today (02/06), Statistics Indonesia released various important economic data that provide more insight into the state of the Indonesian economy. Two of these indicators - inflation and trade - are discussed in this column. Head of Statistics Indonesia Suryamin announced that inflation in May 2014 rose by 0.16 percent (slightly higher than previously expected), while the April 2014 trade balance of Indonesia recorded a USD $1.96 billion deficit. These data were not well received by the market, evidenced by sharp rupiah depreciation.

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The government of Indonesia will submit a new draft proposal for the 2014 Revised State Budget (APBN-P 2014) on 20 May 2014. Of the seven basic macroeconomic assumptions in the 2014 State Budget (APBN 2014), three assumptions are proposed to be revised. These involve general economic growth, the Indonesian rupiah exchange rate, and crude oil lifting. The government felt that the assumptions need a revision as results in the first quarter of 2014 have not been up to expectation.

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ICRA Indonesia, an independent credit rating agency and subsidiary of ICRA Ltd. (associate of Moody's Investors Service), publishes a monthly newsletter which provides an update on the financial and economic developments in Indonesia of the last month. In the April 2014 edition, a number of important topics that are monitored include Indonesia's inflation rate, the trade balance, the BI rate, the IDR rupiah exchange rate, and gross domestic product (GDP) growth. Below is an excerpt of the newsletter:

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The central bank of Indonesia (Bank Indonesia) decided at today’s Bank Indonesia Board of Governors’ Meeting, convened on 8 May 2014, to maintain the country's benchmark interest rate (BI rate) at 7.50 percent, with the Lending Facility rate and Deposit Facility rate held at 7.50 percent and 5.75 percent respectively. This policy is consistent with efforts to steer the rate of inflation towards its target corridor of 4.5±1 percent in 2014 and 4.0±1 percent in 2015, as well as to reduce the current account deficit to a more sustainable level.

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After Statistics Indonesia (BPS) had announced on Monday (05/05) that Indonesia's gross domestic product (GDP) grew by 5.21 percent year-on-year (yoy) in the first quarter of 2014 (considerably below analysts' projections of around 5.6 percent), concerns have risen about the country's economic expansion for the remainder of the year. The government of Indonesia targets a GDP growth rate of between 5.8 and 6.0 percent (yoy). However, several international institutions do not agree with this optimistic target.

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Indonesian Finance Minister Chatib Basri said that the country's economic growth in 2015 is targeted in the range of 5.5 to 6.3 percent. Amid further Federal Reserve tapering and possible interest rate hikes in the world's largest economy, chances of capital outflows from emerging markets (including Indonesia) are becoming larger. Basri said that these global conditions impact on GDP growth, the Indonesian rupiah exchange rate and inflation. Therefore, 2015 is a transition year, reflected by tighter economic projections and state spending.

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The central bank of Indonesia (Bank Indonesia) stated that the country's inflation outcome in April 2014 is further evidence of a continuing downward trend. In fact, Indonesia's consumer price index (CPI) in April recorded deflation of -0.02 percent month-to-month (mtm) or 7.25 percent year-on-year (yoy), thus easing compared to 0.08 percent (mtm) of inflation or 7.32 percent (yoy) in March 2014. Since January 2014, Indonesia has now recorded moderating inflation, both on a monthly and annual basis.

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Indonesia’s HSBC Markit Purchasing Manager’s Index (PMI) showed a reading of 51.1 in April 2014, significantly up from 50.1 in the previous month, meaning that manufacturing activity in Indonesia has grown (a reading above 50.0 indicates expansion, while a reading below 50.0 indicates contraction). In fact, amid improved economic conditions as well as strong demand, manufacturing activity in Southeast Asia’s largest economy expanded at the fastest pace in 11 months.

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ICRA Indonesia, an independent credit rating agency and subsidiary of ICRA Ltd. (associate of Moody's Investors Service), publishes a monthly newsletter which provides an update on the financial and economic developments in Indonesia of the last month. In the March 2014 edition, a number of important topics that are monitored include Indonesia's inflation rate, the trade balance, the BI rate, the IDR rupiah exchange rate, and gross domestic product (GDP) growth. Below is an excerpt of the newsletter:

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