Indonesian September Inflation

As expected - and in line with the traditional September pace - inflation in Southeast Asia’s largest economy was modest at 0.27 percent m/m in September 2014, but accelerating to 4.54 percent on a year-on-year basis (from 3.99 percent y/y in the previous month). Inflation in September was mainly caused by higher electricity prices as well as higher processed food and beverage prices. Inflationary pressures also originated from the new school season.

Meanwhile, core inflation slowed to 4.04 percent y/y. The central bank of Indonesia (Bank Indonesia) still expects inflation to remain within its target range of between 3.5 and 5.5 percent by the year-end.

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%  
November          0.12%  
December          0.55%  
Total          8.38%          3.71%

Indonesia’s August Trade Balance

The trade balance of Indonesia recorded a USD $318.1 million deficit (from a USD $50 million surplus in the preceding month) as oil & gas imports rose. Indonesia’s oil & gas sector posted a USD $800 million deficit in August, while the non-oil & gas sector recorded a USD $490 million surplus.

Suryamin, Head of Statistics Indonesia, stated that total exports in August amounted to USD $14.48 billion, while total imports stood at USD $14.79 billion. Cumulatively, Indonesia's trade balance in the January-August 2014 period suffers a deficit of USD $1.4 billion. For investors the trade deficit (and related current account deficit) is a problem as it puts negative pressure on the rupiah exchange rate.

Indonesian Manufacturing Activity

Market participants were relieved to see results of the HSBC Markit purchasing managers’ index (PMI) survey. The survey showed that Indonesia’s September 2014 manufacturing activity rebounded to 50.7 (from the one-year low of 49.5 in the previous month). September activity thus showed that the contraction in August was only a temporary matter, not a structural trend (a reading below 50 indicates contraction). The increase was supported by enhanced output and new orders. Su Sian Lim, economist at HSBC, said that “staffing levels declined for a second consecutive month in September, and at the quickest rate since March, as an increasing number of companies left job openings unfilled. A further deterioration in payrolls and an ongoing contraction in work backlogs suggest that manufacturing sector conditions could remain moderate over the near-term.”

Foreign Tourist Arrivals

Meanwhile, foreign tourist arrivals to Indonesia increased 7.24 percent y/y to 826,821 in August 2014, thus slowing from the 8.28 percent y/y growth pace in July 2014.

Foreign Tourist Arrivals in Indonesia - 2013-2014:

Month  Tourist Arrivals
 Tourist Arrivals
January        614,328        753,079
February        678,415        702,666
March        725,316        765,607
April        646,117        726,332
May        700,708        752,363
June        789,594        851,475
July        717,784        777,210
August        771,009        826,821
September        770,878  
October        719,900  
November        807,422  
December        766,966  
Total       8,802,129       6,155,553

¹ indicates government target
Source: Statistics Indonesia (BPS)