BPS Chief Suryamin informed reporters that inflation in July 2016 was primarily caused by higher prices of staple food items and higher transportation costs (especially land and air transportation) due to a large increase in travelers amid the Idul Fitri celebrations.

Previously, analysts expected to see monthly inflation between 0.75 - 1.00 percent (m/m) in July as the prolonged rainy season (brought about by the La Nina weather phenomenon) disrupts the supply of several agricultural commodities in Indonesia (for example onions and chilies). The effects of La Nina are estimate to intensify in the months ahead.

Inflation in Indonesia:

Month  Monthly Growth
          2013
 Monthly Growth
          2014
 Monthly Growth
          2015
 Monthly Growth
          2016
January          1.03%          1.07%         -0.24%          0.51%
February          0.75%          0.26%         -0.36%         -0.09%
March          0.63%          0.08%          0.17%          0.19%
April         -0.10%         -0.02%          0.36%         -0.45%
May         -0.03%          0.16%          0.50%          0.24%
June          1.03%          0.43%          0.54%          0.66%
July          3.29%          0.93%          0.93%          0.69%
August          1.12%          0.47%          0.39%
September         -0.35%          0.27%         -0.05%
October          0.09%          0.47%         -0.08%
November          0.12%          1.50%          0.21%
December          0.55%          2.46%          0.96%
Total          8.38%          8.36%          3.35%

Source: Statistics Indonesia (BPS)

Inflation in Indonesia and Central Bank Target 2008-2016:

   2008  2009  2010  2011  2012  2013  2014  2015  2016
Inflation
(annual % change)
  9.8   4.8   5.1   5.4   4.3   8.4   8.4   3.4  
Bank Indonesia Target
(annual % change)
  5.0   4.5   5.0   5.0   4.5   4.5   4.5   4.0   4.0

Source: Bank Indonesia

Manufacturing Activity Indonesia

Indonesia's manufacturing activity experienced an unexpected decline in July 2016. The Nikkei Indonesia Manufacturing Purchasing Managers' Index (PMI) tumbled to a reading of 48.4 last month, down sharply from the 23-month high recorded one month earlier (51.9). A marked fall in new business inflows led Indonesian manufacturing companies to curtail output at the fastest pace this year so far. This subsequently caused job losses and falling buying levels.

Markit Economist Pollyanna de Lima stated that the manufacturing industry of Indonesia is back in reverse gear as operating conditions plunged at the highest pace in 2016 so far. The decline in new orders caused manufacturers to curb production, employment, purchasing and stock levels. However, De Lima also detects a positive matter: given controlled inflation Bank Indonesia has room for more interest rate cuts this year.

Indonesia Manufacturing PMI:

Bahas