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Based on the latest data from Statistics Indonesia (BPS), consumer prices in Indonesia grew 2.57 percent year-on-year (y/y) in February 2019, a near-decade low, and below our forecast of 2.75 percent (y/y). The last time we saw this low level of inflation in Indonesia was back in November 2009.
Indonesia's Deposit Insurance Agency (LPS) expects Indonesian inflation to reach 4.7 percent year-on-year (y/y) in full-year 2017, just within the central bank's 3 - 5 percent (y/y) inflation target. Didiek Madiyono, Executive Director of the LPS, said administered price adjustments will be the primary reason why the inflation rate of Indonesia will accelerate from 3.0 percent (y/y) in 2016 to 4.7 percent (y/y) in 2017. Administered prices are those prices that are set by the government. Usually when the government changes its subsidy policies, it needs to adjust certain prices.
In line with expectation, Indonesia's consumer price index fell in February 2016. Based on the latest data from Statistics Indonesia (BPS), released this morning, Southeast Asia's largest economy recorded deflation of 0.09 percent month-on-month (m/m) in the second month of the year on the back of lower food prices and lower electricity tariffs. However, on a year-on-year basis, Indonesia's inflation rate rose from 4.14 percent (y/y) in January to 4.42 percent (y/y) in February.
Indonesia's electricity subsidies may exceed the IDR 38.39 trillion (approx. USD $2.8 billion) allocated in the 2016 State Budget as there are probably more customers entitled to electricity subsidy than previously estimated. Last month, the Indonesian government and House of Representatives (DPR) agreed on cutting electricity subsidies for 450 VA and 900 VA households, per 1 January 2016, by disconnecting those people that are currently enjoying cheap electricity rates while they are not classified as 'poor' or 'near-poor' and thus do not deserve the subsidized price.
The Indonesian government revised down its target for the country's manufacturing growth in 2014 to 6 percent year-on-year (yoy) from 6.4 to 6.8 percent (yoy) previously. Main reason for the downgrade was the lower than expected GDP growth result in the first quarter of 2014. Earlier this week, Statistics Indonesia announced that the Indonesian economy expanded 5.21 percent in Q1-2014, the slowest quarterly growth pace since the fourth quarter of 2009. Last year, Indonesia's manufacturing sector grew 6.19 percent (yoy).
Contrary to reports last week, the central bank of Indonesia (Bank Indonesia) expects that the country's January inflation rate may exceed 1 percent due to the disturbance of food products distribution amid severe floods in several cities in Indonesia, particularly Jakarta and Manado. Higher food prices are expected to add 0.3 percent to the monthly inflation rate. Apart from the flood issue, higher LPG as well as electricity tariffs (in the industry sector) will also contribute to January 2014 inflation.
Perusahaan Listrik Negara (PLN) is the state-owned company (SOE) that holds the monopoly on the distribution of electricity in Indonesia. The company is the second-largest SOE by assets after energy company Pertamina. Total capacity of PLN’s power plants at end-2012 have grown to 32.901 MW. The company is tasked to increase Indonesia's electrification ratio (the percentage of Indonesian households that are connected to the nation's electricity grid) to 90 percent by 2020. Currently, the ratio is around 77 percent.
Perusahaan Listrik Negara (PLN), Indonesia's state-owned company that has a monopoly on the supply and distribution of electricity in Indonesia, introduces the final installment of this year's electricity price hike today (01/10). Electricity tariffs are raised by 4.3 percent each quarter of 2013 as the government tries to curb huge energy subsidies. Poorer households (450 to 900 VA) are not affected by these price adjustments. After the price hikes in January, April, July and October, electricity tariffs will have risen about 15 percent in total in 2013.
The Ministry of Energy and Resources stated that the Indonesian government will go ahead with the increase in electricity rates this year. Up to the end of this year, electricity rates will increase every quarter by about four percent to reach a total increase of 15 percent. In early January, the first rate increase was introduced by raising the tariff of electricity sold by state-owned Perusahaan Listrik Negara (PLN), the sole electricity provider in Indonesia.
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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.
Indonesia needs to prepare for higher electricity tariffs as the government and House of Representatives (DPR) agreed on cutting electricity subsidies for 450 VA and 900 VA households starting from 1 January 2016. Indonesian authorities only want to provide electricity subsidies to the 24.7 million poorest Indonesian households. However, currently around 45.4 million Indonesians have connections of 450 VA and 900 VA.
Indonesian cement sales fell 0.4 percent (year-on-year) to 4.52 million tons in April 2014. The decline in cement sales was the result of the country’s legislative election that was held on 9 April 2014 as consumers bought few building materials during the campaign period. Head of the Indonesian Cement Association (ASI) Widodo Santoso stated that a number of large infrastructure projects are currently being tendered and are thus unable to boost domestic cement sales yet.
The inflation rate of Indonesia rose slightly in November 2013 (month-to-month) and confirms estimations that inflation in Southeast Asia's largest economy is under control after having accelerated sharply due to the introduction of higher subsidized fuel prices June 2013. In recent months, inflation moved sideways and is expected to ease considerably in the first quarter of 2014. Indonesia's consumer price index rose 0.12 percent in November due to rising electricity, processed foods and health care costs.
