Core inflation, which excludes volatile energy and food prices, remained controlled at 4.93 percent (y/y), implying that Indonesian authorities conducted good policies to manage domestic demand and maintain (relative) exchange rate stability amid severe worldwide volatility due to the bullish US dollar (brought about by the structural economic recovery of the USA, hence resulting in increased expectation that the Federal Reserve will raise its key interest rate sooner-than-later).

However, inflationary pressures remain high at the start of 2015 despite the easing impact of higher energy prices. Unfavorable weather conditions may trigger higher food prices, while seasonal festivities (New Year) traditionally bring pressures in the month of January. Indonesia’s central bank (Bank Indonesia) set an inflation target of between 3 and 5 percent in 2015.

 Inflation in Indonesia:

Month  Monthly Growth
 Monthly Growth
January          1.03%          1.07%
February          0.75%          0.26%
March          0.63%          0.08%
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%

Source: Statistics Indonesia (BPS)

Inflation of Indonesia 2008-2014:

    2008   2009   2010   2011   2012   2013   2014
(annual percent change)
   9.8    4.8    5.1    5.4    4.3    8.4    8.4

Source: World Bank

Indonesia’s November Trade Balance

Indonesia posted a weaker-than-expected trade balance in November 2014. According to the latest data from Statistics Indonesia, the country’s trade deficit amounted to USD $0.42 billion (after having recorded a USD $0.02 surplus in the previous month). The November deficit is the result of a widening deficit in the country’s oil & gas trade balance in combination with a declining surplus in the country’s non-oil & gas trade balance. The deficit in the oil & gas trade balance in November 2014 was USD $1.36 billion, up from the USD $1.11 billion deficit in the previous month, as oil & gas exports declined from USD $2.47 billion to USD $2.11 billion. This weaker performance occurred amid the worldwide declining trend of oil and other commodity prices. Exports of oil products fell 50.4 percent (m/m) to USD $0.2 billion, while export of gas declined 15.1 percent (m/m) to USD $1.2 billion.

Indonesia Balance of Trade (in USD million):

Meanwhile, sluggish global demand impacted on the country’s non-oil & gas trade balance. The non-oil & gas surplus contracted to USD $0.94 billion as non-oil & gas exports fell to USD $11.5 billion (from USD $12.9 billion in the previous month). The decline was mainly visible in exports of fats & animal/vegetable oils, electrical machinery/appliances, rubber & rubber products, mechanical appliances & machinery, and vehicles & spare parts. In terms of export destination, non-oil & gas exports particularly declined to the ASEAN region, European Union, Japan, USA, India, Australia, South Korea, and Taiwan. The non- oil & gas trade balance was supported by weakening non-oil & gas imports, signalling weakened domestic demand. Non-oil & gas imports fell to USD $10.6 billion in November 2014 (from USD $11.7 billion in the previous month), mainly due to the decline of imports of machinery & mechanical appliances, iron & steel, plastic & plastic products, organic chemicals, vehicles & spare parts, cereals, residual of the food industry, and cotton.

The weak trade performance in November implies that Indonesia will have difficulty to improve its wide current account deficit markedly at the end of 2014. This deficit, which makes the country highly vulnerable to capital outflows in times of global shocks, was 3.3 percent of the country’s gross domestic product (GDP) in 2013 and is expected to have eased slightly to 3 percent of GDP in 2014. It is important for Indonesia that the global economic recovery picks up (particularly the sluggish economies of China, Japan and India) to see better export performance. Recent subsidized fuel price reforms conducted by the Indonesian government in combination with the falling trend of global oil prices are expected to lead to improved performance of the country’s oil & gas trade balance.

Current Account Balance Indonesia (% of GDP):