The DBS Bank expects that Indonesia's inflation rate will reach 8.2 percent (year-on-year) by the end of 2013, supported by a low monthly inflation rate in the last month of the year. The DBS Bank believes that the pace of inflation in December 2013 will be slightly higher than the country's November inflation (0.12 percent). In the period January to November 2013, inflation in Southeast Asia's largest economy has accumulated to 7.79 percent (yoy). The bank also stated that it expects inflation to reach 6.7 percent in full-year 2014.

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On Sunday 22 December 2013, Indonesia Investments released its latest newsletter. This free newsletter, which is sent to our subscribers once per week, contains the most important news stories from Indonesia that have been reported on during the last seven days on our website. Most of the topics involve economic matters such as a forecast of the performance of the Jakarta Composite Index, the government's fuel subsidy spending, crude palm oil exports, the initial public listing of Sido Muncul Herbal, and more.

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The depreciating Indonesia rupiah exchange rate has large consequences for Indonesia's state budget, in particular fuel subsidy spending, as the government imports a large quantity of its crude oil demand (in US dollars). The weak rupiah, which has depreciated about 25 percent against the US dollar since the start of 2013, results in a ballooning of fuel subsidy spending. In the Revised State Budget of 2013, fuel subsidies were set at IDR 199.9 trillion but after the rupiah's downslide, another IDR 50 trillion is needed to cover the imports.

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Indonesia's domestic consumption is expected to continue its steady growth in the next five to 10 years as Indonesia's rapidly expanding middle class is becoming increasingly consumptive and eager to follow the latest trends (purchasing the latest trendy products). This expanding middle class is the result of robust economic growth in Southeast Asia's largest economy. Although currently slowing, the country's annual gross domestic product growth has reached an average of almost 6 percent since 2005.

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Agus Martowardojo, Governor of Bank Indonesia, expects Indonesia's November inflation rate to be modest at 0.05 to 0.1 percent (month-to-month). If Martowardojo's expection will be met then it means that inflation in Southeast Asia's largest economy is under control as November would be the third consecutive month of low inflation (or deflation). Inflation had accelerated significantly since June 2013 after the government raised prices of subsidized fuels and might reach 9 percent (yoy) by the end of 2013.

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Indonesia's biodiesel consumption has risen considerably during the last three months after the Indonesian government raised the mandatory amount of palm oil (fatty acid methyl ester) blended in biodiesel from 7.5 percent to 10 percent. For power plants that use biodiesel the amount has been increased to 20 percent. Biodiesel consumption in Southeast Asia's largest economy jumped from 57,871 kiloliters in August 2013 to 101,857 kiloliters in September and to 116,281 kiloliters in October.

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Agus Martowardojo, Governor of Indonesia's central bank (Bank Indonesia), stated that the country's economy is expected to grow 5.7 percent in 2013. Bank Indonesia believes GDP growth in the fourth quarter of 2013 to fall below the growth figure realized in Q3-2013 (5.62 percent). Martowardojo said that the government needs to continue measures to improve the country's exports, while trying to curtail imports of oil and gas as domestic demand for fuels remained high, even after the increase in prices of subsidized fuels in June 2013.

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Indonesia continues to top the ranking of countries with the highest consumer confidence in the third quarter of 2013 although its score fell four points from the second quarter to 120. According to the Nielsen Global Survey of Consumer Confidence and Spending Intentions, consumers in Indonesia are optimistic due to the general elections in mid-2014 and growth of the country's middle class. However, as inflation surged after prices of subsidized fuels were raised in June, the score fell slightly.

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The central bank of Indonesia (Bank Indonesia) sees a continued easing trend in inflationary pressures in October 2013. Indonesia's inflation in October 2013 was recorded at 0.09 percent (month-to-month), thus confirming the indication that monthly inflation is back to its normal pattern in the last five years. However, the annual inflation pace is still high at 8.32 percent (yoy). Limited inflation in October was influenced by deflation of the food group component (0.80 percent mtm), although commodity prices rose (especially red chili).

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Indonesia's trade surplus in August 2013 was not continued into September. Today (01/11), Statistics Indonesia announced that the country experienced a trade deficit of USD $657.2 million in September 2013. Exports in September fell 6.85 percent year-on-year (yoy) to USD $14.81 billion, while imports rose 0.77 percent (yoy) to USD $15.47 billion. During January-September 2013, total exports amounted to USD $134.05 billion, while total imports amounted to USD $140.31 billion. This means that the current trade deficit stands at USD $6.26 billion.

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The Energy and Mineral Resources Ministry of Indonesia reported that government spending on energy subsidies in full-2022 reached IDR 157.6 trillion (or approx. USD $10.5 billion), well below the target that was set by the central government for 2022 (namely at IDR 211.1 trillion or approx. USD $14.1 billion). So, this certainly is good news for the government’s budget balance.

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It has been more than a week since the Indonesian government raised its subsidized fuel prices (Pertalite, Pertamax, and automotive diesel fuel) by an average of slightly over 26 percent. One of the most interesting things is to see whether this decision leads to overall growing prices in Indonesian society. After all, fuel is crucial for the movement of goods and services, and has a significant impact on logistics costs.

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While one month ago we read (in Indonesian media) that Indonesian President Joko Widodo vowed no increase in prices of subsidized fuels before the end of 2022, the situation suddenly changed. Based on reports in Indonesian media in the second half of August 2022 there were growing signs that the government was busy preparing a significant increase in prices of subsidized fuels (involving Pertalite and Pertamax gasoline fuels as well as automotive diesel oil) to safeguard a healthy budget balance for the government.

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Ahead of the legislative and presidential elections (scheduled for April 2019) the Indonesian government is unwilling to impose impopular measures. One of the side-effects is that subsidy spending has gone beyond the target that was set in the 2018 State Budget. Lets take a closer look at spending on energy subsidies in Indonesia so far this year.

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The decision of Indonesia's central bank (Bank Indonesia), last week, to cut its key interest rate (BI rate) by 0.25 percent to 7.00 percent and to cut the reserve-requirement ratio for commercial banks' rupiah deposits by 1 percent to 6.5 percent is a decision that should boost household consumption in Indonesia in 2016, improve people's purchasing power, give rise to a stronger automotive and property sector, and boost liquidity at local banks (hence providing room for an acceleration of credit growth in Southeast Asia's largest economy).

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After having experienced two consecutive months of deflation in September and October, Indonesia is expected to see inflation again in November, primarily on higher food prices (chicken meat and rice). Agus Martowardojo, Governor of Bank Indonesia, expects an inflation rate of 0.2 percent (month-on-month) in November. This would mean that inflation in full-year 2015 is likely to reach 3 percent (y/y), in line with earlier estimates and within - or perhaps slightly below - Bank Indonesia's target range of 3 - 5 percent (y/y) of inflation in 2015.

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The government of Indonesia unveiled the last installment of a series of three stimulus packages on Wednesday (07/10). The first two installments had been unveiled last month. In general, these stimulus packages aim to boost economic growth of Indonesia (which has slowed to a six-year low) and restore investors' confidence in the Indonesian rupiah and stocks. When markets believed that the Federal Reserve would soon raise its key interest rate, Indonesia was plagued by severe capital outflows pushing the rupiah to a 17-year low.

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Since late 2011 Indonesia has been plagued by a structural current account deficit (CAD) that has worried both policymakers and (foreign) investors. Despite Indonesian authorities having implemented policy reforms and economic adjustments in recent years, the country’s CAD remains little-changed in 2015. The World Bank and Bank Indonesia both expect the CAD to persist at slightly below 3 percent of the nation’s gross domestic product (GDP) in 2015, alarmingly close to the boundary that separates a sustainable from an unsustainable deficit.

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Although most emerging market stocks fell, Indonesian stocks and the rupiah showed a solid performance on Thursday (21/05). The rupiah appreciated 0.40 percent to IDR 13,122 per US dollar according to the Bloomberg Dollar Index, while the benchmark stock index of Indonesia (Jakarta Composite Index) rose 0.39 percent to 5,313.21 points. Most emerging stocks fell due to weak data from China (despite a series of stimulus). However, Indonesian stocks were supported by news about its credit rating and dividend announcements.

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Inflation in Indonesia is expected to accelerate to 6.80 percent year-on-year (y/y) in April 2015, from 6.38 percent y/y in the previous month, according to the central bank of Indonesia (Bank Indonesia). As global oil prices have somewhat recovered from their recent lows, they add inflationary pressures in Indonesia (higher transportation costs). On a month-on-month (m/m) basis, Indonesian inflation is expected to be around 0.35 percent in April. This figure would be in sharp contrast to ‘normal’ April inflation.

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