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Latest Reports Inflation
After a six-month period of either deflation or very low inflation (all driven by easing food prices), the month of November finally brought some more significant inflation to Indonesia as we approach the end of 2024 (meaning: arrival of the festive season).
Between May and September 2024, Indonesia had experienced a (remarkable) five-month deflation streak, driven by contracting food prices. And so, we were certainly quite interested in the latest consumer price index (CPI) data that were released by the Statistical Office of Indonesia (Badan Pusat Statistik, BPS) on 1 November 2024.
Something very unusual is happening in Indonesia (something we normally only see during crises). The latest consumer price index data released by the Statistical Office of Indonesia (Badan Pusat Statistik, BPS) show that Indonesia experienced its fifth consecutive month of deflation in September 2024.
On Friday 4 October 2024 Indonesia Investments released the September 2024 edition of its monthly report. The report discusses a range of economic, political and social topics to assess the state of the Indonesian economy.
Last month it was remarkable that Indonesia experienced three straight months of inflation (this rarely happens unless a crisis occurs). Considering August is typically a month without inflationary pressures this streak was expected to continue. Indeed, the Statistical Office (Badan Pusat Statistik, BPS) confirmed that deflation was 0.03 percent month-on-month (m/m) in August 2024.
On Friday 6 September 2024 Indonesia Investments released the August 2024 edition of its monthly report. This report discusses various economic, political and social topics that were relevant (to Indonesia) in the month of August 2024.
Again, and in contrast to our expectations, Indonesia’s consumer price index showed deflation. After 0.03 percent month-on-month (m/m) of deflation in May 2024, the latest data from Indonesia’s Statistical Office (Badan Pusat Statistik, or BPS) show a 0.08 percent (m/m) deflation rate in June 2024.
On Friday 05 July 2024, Indonesia Investments released the June 2024 edition of its monthly report. The report zooms in on the latest economic, political and social developments that (potentially) impact on the investment environment of Indonesia.
On Sunday 5 May 2024 Indonesia Investments released the April 2024 edition of its monthly report. As usual, the report zooms in on topics - relevant in the month of April 2024 - that affect the investment environment of Indonesia.
Over the past couple of months we have often expressed our concern over inflation in Indonesia, particularly low core inflation as it could signal that purchasing power is quite weak. In February 2024 we finally saw some inflationary pressures again in Indonesia with a 0.37 percent month-on-month (m/m) inflation rate.
Latest Columns Inflation
Rising commodity prices are good for the Indonesian economy because the country is one of the world's biggest commodity exporters. However, rising commodity prices will also make it more difficult for the government to keep inflation within its target range of 2.5 - 4.5 percent year-on-year (y/y) in 2018.
Bank Indonesia is content seeing Indonesia's inflation pace at a rather mild rate of 0.22 percent month-on-month (m/m) in July 2017. Dody Budi Waluyo, Executive Director of Economic and Monetary Policy at the central bank, said low and stable inflation is a positive asset for the economy as it supports the rupiah exchange rate as well as the investment climate and safeguards people's purchasing power.
The central bank of Indonesia (Bank Indonesia) maintained its benchmark interest rate - the 7-day reverse repurchase rate - at 4.75 percent at the policy meeting on 17-18 May 2017, a decision that is in line with analysts' forecasts. Bank Indonesia said the decision is consistent with its efforts to maintain macroeconomic and financial system stability "by driving the domestic economic recovery process", while continue to monitor external threats stemming from US policy directions and geopolitical conditions, specifically in the Korea Peninsula, as well as domestic threats stemming from inflationary pressures and ongoing consolidation in the banking and corporate sectors.
It is highly unlikely to see the continuation of deflation in April. Last month (March 2017) Indonesia recorded 0.02 percent of deflation, primarily on the back of easing food prices amid the big harvest season. This harvest season will continue into April and therefore we expect few (to none) inflationary pressures stemming from food products. However, administered price adjustments (specifically another round of higher electricity tariffs in March) will impact of April's inflation figure, while consumer prices may also start to feel the impact of the approaching Ramadan month.
The central bank of Indonesia (Bank Indonesia) kept its benchmark interest rate (seven-day reverse repo rate) at 4.75 percent at the April policy meeting (19-20 April 2017), while its deposit facility rate and lending facility rate stayed at 4.00 percent and 5.50 percent, respectively. Bank Indonesia considers the current interest rate environment appropriate to face global uncertainties as well as rising inflationary pressures at home.
The central bank of Indonesia (Bank Indonesia) said it carefully monitors the impact of higher electricity tariffs on the nation's inflation pace in March 2017. This month the government implemented the second phase of its gradual electricity tariff increase program for 900-VA household customers. Indonesia's state-owned electricity company Perusahaan Listrik Negara (PLN) decided to raise the electricity price for 900-VA households three times this year in order to cut energy subsidies and ensure that these subsidies are indeed channeled to the right people.
The Bank of Indonesia recently resorted to a sudden cut in interest rate (by 25 bps to 4.75 percent) at its 20th October 2016 meeting. This followed a 25 bps reduction in September and thus this is the sixth time this year that the Indonesian central bank has elected to loosen monetary policy.
An International Monetary Fund (IMF) team, led by Luis E. Breuer, visited Indonesia between 7 and 18 November 2016 to conduct the annual Article IV Consultation. The IMF team exchanged views with Indonesian government officials, Indonesia's central bank (Bank Indonesia), and other public agencies, as well as representatives of the private sector, academics, and students on recent economic and financial market developments and the near-to-medium-term economic outlook.
The central bank of Indonesia (Bank Indonesia) has become slightly less optimistic about Indonesia's economic growth in the third quarter of 2016. Bank Indonesia revised down its growth projection to below the 5 percent (y/y) mark for Q3-2016 (from an earlier forecast of 5.2 percent). However, the lender of last resort still expects to see a better performance compared to the 4.73 percent (y/y) pace posted in Q3-2015. Meanwhile, low inflation and a strong rupiah could result in another interest rate cut in Southeast Asia's largest economy.
On September 22, 2016, the central bank of Indonesia (Bank Indonesia) decided to cut its BI seven-day repo rate from 5.25 percent to 5.00 percent, and this has changed parts of the long-term outlook for investors. Bank Indonesia also reduced its lending rate to 5.75 percent (from previous 5.50 percent), and the deposit rate to 4.50 percent (from previous 4.75 percent previously). This is significant because it shows that lending rates and interest rates have dropped to multi-year lows with the current policy changes.
