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Today's Headlines Inflation
Indonesia ended 2022 with a modest increase in inflationary pressures. Indonesia’s Statistical Agency (or BPS) announced that December 2022 inflation reached 0.66 percent month-on-month (m/m), higher than our forecast of around 0.50 percent.
On 5 January 2023, Indonesia Investments released the December 2022 edition of its monthly report. This report discusses and analyses a number of important economic and political topics (all related to Indonesia) that were relevant in the month of December 2022.
As expected, the central bank of Indonesia (henceforth: Bank Indonesia) decided to raise its benchmark interest rate (the 7-Day Reverse Repo Rate) by 25 basis points (bps) to 5.50 percent after concluding its latest (two-day) monetary policy meeting on 21-22 December 2022. Meanwhile, it also decided to raise the deposit facility and lending facility rates by 25 bps to 4.75 percent and 6.25 percent, respectively.
Again, we were surprised by the low level of inflation in Indonesia. While usually we see rising inflationary pressures in the month of November (ahead of the peak in the December-January period), this time it was a different story.
On Wednesday (07.12.2022) Indonesia Investments released the November 2022 edition of its monthly report. In this report we zoom in on the most important economic, political, and social developments of Indonesia over the past month.
Last month, when we discussed the trade performance of Indonesia, we questioned whether the steep decline in the country’s exports and imports in September 2022 (compared to August 2022) could actually be a tipping point for national trade.
On 7 November 2022 Indonesia Investments released the October 2022 edition of its monthly report. Our report presents in-depth and independent analyses of a range of economic, political and social subjects that have been in the news in the month of October 2022.
Last month we stated that Indonesia’s central bank (Bank Indonesia) might just be at the start of a (prolonged) monetary tightening cycle. After all, higher interest rates is what we see happening across the world; a development that is led by the Federal Reserve (Fed) that has been aggressively raising its benchmark interest rate to fight inflation. This then causes capital outflows from most other parts of the world.
In line with expectations, Indonesian inflation accelerated well beyond 1.0 percent month-on-month (m/m) in September 2022 after the government raised prices of subsidized fuels (Pertalite, Pertamax and diesel oil) on 3 September 2022.
On 6 October 2022 Indonesia Investments released the September 2022 edition of its monthly report. In this report we analyze the latest (and most relevant) economic, political, and social news from Indonesia.
Latest Columns Inflation
Only 50 days since the start of the fiscal year 2014 have passed and the government has already shown that it is not convinced to meet targets of basic macroeconomic assumptions set in the 2014 State Budget (APBN 2014). Therefore, the Indonesian government has lowered the outlook for all basic macroeconomic assumptions in the 2014 State Budget. On Thursday 19 February 2014, the government formally presented the downward revision of economic targets in the State Budget to the House of Representitative's Budget Agency.
Recently, Statistics Indonesia (BPS) released various data in the context of Indonesia's gross domestic product (GDP). Economic expansion of Southeast Asia's largest economy slowed to 5.78 percent (year-on-year) in 2013. Household consumption accounted for the largest share of Indonesia's GDP (55.8 percent) and continued to grow significantly (5.28 percent yoy) in 2013. This consumer force is one of the main reasons why many foreign companies enter and expand their businesses in Indonesia.
At Bank Indonesia's Board of Governors’ Meeting today (13/02), it was decided to maintain the country's benchmark interest rate (BI rate) at 7.50 percent as well as the interest rates on the Lending Facility and Deposit Facility at 7.50 percent and 5.75 percent respectively. The policy is consistent with the tight monetary policy stance currently adopted in order to steer inflation back towards its target corridor of 4.5±1 percent in 2014 and 4±1 percent in 2015, as well as to reduce the current account deficit to a more sustainable level.
Domestic sales of motorcycles in Indonesia fell 11 percent to 580,288 units in January 2014. The main reason for this decline in the first month of the year were severe floods brought about by high rainfall amid a peak of the rainy season. These weather conditions disrupted the distribution of motorcycles from factories to dealers. As a result, all motorcycle brands recorded lower sales figures according to data released by the Indonesian Motorcycle Industry Association (Aisi). However, more factors were at play.
ICRA Indonesia, an independent credit rating agency and subsidiary of ICRA Ltd. (associate of Moody's Investors Service), publishes a monthly newsletter which provides an update on the financial and economic developments in Indonesia of the last month. In the January 2014 edition, a number of important topics that are monitored include Indonesia's inflation rate, the trade balance, the current account deficit, the IDR rupiah exchange rate, and gross domestic product (GDP) growth. Below is an excerpt of the newsletter:
On Wednesday (05/02), Statistics Indonesia (BPS) reported that the economy of Indonesia expanded 5.78 percent in 2013. This result implies that in 2013 Indonesia experienced the slowest pace of GDP growth since its 4.63 percentage growth in 2009. However, this slowing growth was basically self-inflicted as both the Indonesian government and central bank (Bank Indonesia) used various monetary and fiscal policies to curb economic expansion in order to tackle several financial issues.
The pace of Indonesia's monthly January inflation rate was higher in 2014 than in the same month during the past five years. This relatively high inflation rate this year, recorded at 1.07 percent, was caused by severe rainfall and floods in several parts of Indonesia (particularly in the cities of Jakarta and Manado) amid the peak of the rainy season. These weather-related circumstances impacted on prices of food products as distribution channels were disrupted, thus giving rise to increasing prices. Annual inflation, however, slightly eased.
Despite the release of positive macroeconomic data on Monday (03/02), Indonesia's rupiah exchange rate depreciated 0.22 percent to IDR 12,240 per US dollar based on the Bloomberg Dollar Index. China’s Manufacturing PMI fell to a six-month low of 50.5 in January and put pressure on stocks and currencies in emerging markets. Moreover, the Federal Reserve's further reduction of its quantitative easing program (to USD $65 billion per month) continues to strengthen the US dollar at the expense of emerging currencies.
This year, legislative and presidential elections will be held in Indonesia. Obviously, there is a strong relationship between the politics and economics of a country. Businessmen from various sectors of Indonesia's economy have already been voicing their views. As the umbrella organization of the Indonesian business chambers and associations, Kadin Indonesia recently shared its views about the elections as well. The institute believes that the 2014 elections will run smoothly because Indonesia's democracy has matured.
On Wednesday 5 February 2014, Statistics Indonesia (BPS, a non-departmental government institute) is expected to release Indonesia's official GDP growth figure for the year 2013. It is estimated that the outcome will be the lowest GDP growth figure since 2009 when Southeast Asia's largest economy grew 4.6 percent after feeling the impact of the global financial crisis. In 2013, again, Indonesia felt the negative influence of external troubles. And in combination with domestic factors, Indonesia's economic growth is expected to be around 5.7 percent in 2013.
