Inflation remains high in Indonesia hence curtailing people’s purchasing power (this is one of the reasons why there was held a mass protest in Central Jakarta by Indonesian workers today) and leading to weakening consumer confidence in Southeast Asia’s largest economy. According to the latest data from BPS prices for food & processed food products, healthcare and education climbed compared to a year ago, while clothing, housing and transportation prices fell.

Indonesia’s inflation rate has been high since mid-2013 when the Indonesian government raised prices of subsidized fuels. Before inflation was able to ease, the central government implemented another subsidized fuel price hike in November 2014 adding another round of inflationary pressure. When the government largely scrapped its fuel subsidy program in January 2015 it initially had a positive impact on inflation due to low global petroleum prices. However, as oil prices tended to somewhat rebound in the next couple of months, inflationary pressures in Indonesia rose accordingly.

Moreover, inflation in Indonesia usually rises in the June-August period due to the influence of the Ramadan month, Idul Fitri celebrations, and the new school year as consumer spending rises in this period.

Core inflation, which excludes volatile items such as food and fuel, increased by 4.92 percent (y/y) in August, up from 4.86 percent (y/y) in the previous month and above analysts’ expectations (at 4.8 percent y/y). Headline inflation has accumulated to 2.29 percent in the first eight months of 2015.

Indonesia’s central bank targets an inflation rate in the range of 3 to 5 percent (y/y) in 2015, while the Indonesian government set the target at exactly 5 percent (y/y) in the 2015 State Budget.

Inflation in Indonesia:

Month  Monthly Growth
 Monthly Growth
 Monthly Growth
January          1.03%          1.07%         -0.24%
February          0.75%          0.26%         -0.36%
March          0.63%          0.08%          0.17%
April         -0.10%         -0.02%          0.36%
May         -0.03%          0.16%          0.50%
June          1.03%          0.43%          0.54%
July          3.29%          0.93%          0.93%
August          1.12%          0.47%          0.39%
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%          2.29%

Source: Statistics Indonesia (BPS)

Inflation in 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

Manufacturing Activity in Indonesia

Meanwhile, Indonesia’s manufacturing industry continued to contract in August - for the eleventh straight month - due to falling output and declining new orders. On a positive note, the August reading was better than the preceding month’s reading. The Nikkei Indonesia Manufacturing Purchasing Managers' Index, or PMI, rose to 48.4 in August 2015, up from 47.3 in July (a reading below 50.0 signals contraction). Output fell amid lower incoming work but the pace of decline was the softest since January. Meanwhile, new orders fell (also at a weaker rate compared to the preceding month) due to sluggish demand from Asian clients. As a result, jobs were shed again in August but also at a slower pace. Lastly, selling prices rose due to persistent rupiah weakening against the US dollar (leading to the input price inflation accelerating to an 8-month high).

Indonesia Manufacturing PMI