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Today's Headlines Inflation
While Indonesian inflation accelerated more than we had predicted amid the festive season in May 2021 (referring to the Idul Fitri celebrations that mark the end of the Ramadan month), it remained low overall for Southeast Asia’s largest economy.
On Wednesday (05.05.2021) Indonesia Investments released the April 2021 edition of its monthly report. In the report we track important developments - from the perspective of politics, the economy and social matters - that were influential (and impacted on the Indonesian economy) last month.
In line with expectations, Indonesia’s inflation rate remained low despite the start of the Ramadan in the second week of April 2021. While the Ramadan typically gives rise to a big spike in food prices, the COVID-19 crisis has curbed demand in society.
Weak demand across Indonesia, a consequence of the COVID-19 crisis, persisted into the second month of 2021 with Indonesia’s consumer price index (CPI) showing a modest inflation rate of 0.10 percent month-on-month (m/m) in February 2021.
Indonesia’s December 2020 headline inflation accelerated slightly more than we had expected. Based on the latest data from Statistics Indonesia (BPS) this is particularly caused by rising food prices in the context of Christmas and New Year celebrations.
In line with expectations, October 2020 brought mild inflation to Indonesia, thereby allowing the country’s consumer price index (CPI) to rebound after experiencing an unprecedented three consecutive months of deflation (July-September 2020).
For the third straight month Indonesia experienced mild deflation. According to the latest data from Badan Pusat Statistik (BPS), Indonesia’s consumer price index (CPI) showed deflation of 0.05 percent month-on-month (m/m) in September 2020.
As we predicted last month, August 2020 brought mild deflation to Indonesia. Based on the latest data from Badan Pusat Statistik (BPS), the consumer price index posted deflation of 0.05 percent month-on-month (m/m).
The novel coronavirus (COVID-19) pandemic brings unusual times for any country, especially in terms of the economic and social environments. In the case of Indonesia it has triggered historically low headline inflation, namely 1.54 percent year-on-year (y/y) after July 2020 brought deflation of -0.10 percent month-on-month (m/m).
On Wednesday (05/08/2020) Indonesia Investments released the July 2020 edition of its monthly report. In this edition, titled 'A Modest Rebound', we discuss the impact of the COVID-19 crisis on the Indonesian economy, Indonesia's automotive industry, and a range of other topics.
Latest Columns Inflation
The central bank of Indonesia (Bank Indonesia) maintained its benchmark interest rate - the 7-day reverse repurchase rate - at 4.75 percent at the policy meeting on 17-18 May 2017, a decision that is in line with analysts' forecasts. Bank Indonesia said the decision is consistent with its efforts to maintain macroeconomic and financial system stability "by driving the domestic economic recovery process", while continue to monitor external threats stemming from US policy directions and geopolitical conditions, specifically in the Korea Peninsula, as well as domestic threats stemming from inflationary pressures and ongoing consolidation in the banking and corporate sectors.
It is highly unlikely to see the continuation of deflation in April. Last month (March 2017) Indonesia recorded 0.02 percent of deflation, primarily on the back of easing food prices amid the big harvest season. This harvest season will continue into April and therefore we expect few (to none) inflationary pressures stemming from food products. However, administered price adjustments (specifically another round of higher electricity tariffs in March) will impact of April's inflation figure, while consumer prices may also start to feel the impact of the approaching Ramadan month.
The central bank of Indonesia (Bank Indonesia) kept its benchmark interest rate (seven-day reverse repo rate) at 4.75 percent at the April policy meeting (19-20 April 2017), while its deposit facility rate and lending facility rate stayed at 4.00 percent and 5.50 percent, respectively. Bank Indonesia considers the current interest rate environment appropriate to face global uncertainties as well as rising inflationary pressures at home.
The central bank of Indonesia (Bank Indonesia) said it carefully monitors the impact of higher electricity tariffs on the nation's inflation pace in March 2017. This month the government implemented the second phase of its gradual electricity tariff increase program for 900-VA household customers. Indonesia's state-owned electricity company Perusahaan Listrik Negara (PLN) decided to raise the electricity price for 900-VA households three times this year in order to cut energy subsidies and ensure that these subsidies are indeed channeled to the right people.
The Bank of Indonesia recently resorted to a sudden cut in interest rate (by 25 bps to 4.75 percent) at its 20th October 2016 meeting. This followed a 25 bps reduction in September and thus this is the sixth time this year that the Indonesian central bank has elected to loosen monetary policy.
An International Monetary Fund (IMF) team, led by Luis E. Breuer, visited Indonesia between 7 and 18 November 2016 to conduct the annual Article IV Consultation. The IMF team exchanged views with Indonesian government officials, Indonesia's central bank (Bank Indonesia), and other public agencies, as well as representatives of the private sector, academics, and students on recent economic and financial market developments and the near-to-medium-term economic outlook.
The central bank of Indonesia (Bank Indonesia) has become slightly less optimistic about Indonesia's economic growth in the third quarter of 2016. Bank Indonesia revised down its growth projection to below the 5 percent (y/y) mark for Q3-2016 (from an earlier forecast of 5.2 percent). However, the lender of last resort still expects to see a better performance compared to the 4.73 percent (y/y) pace posted in Q3-2015. Meanwhile, low inflation and a strong rupiah could result in another interest rate cut in Southeast Asia's largest economy.
On September 22, 2016, the central bank of Indonesia (Bank Indonesia) decided to cut its BI seven-day repo rate from 5.25 percent to 5.00 percent, and this has changed parts of the long-term outlook for investors. Bank Indonesia also reduced its lending rate to 5.75 percent (from previous 5.50 percent), and the deposit rate to 4.50 percent (from previous 4.75 percent previously). This is significant because it shows that lending rates and interest rates have dropped to multi-year lows with the current policy changes.
In line with expectations, Indonesia's inflation rate eased to 2.79 percent year-on-year (y/y) in August 2016, from 3.21 percent (y/y) in the preceding month. Consumer price inflation in Indonesia fell on the back of declining prices after the Islamic celebrations of Ramadan and Idul Fitri ended in July. On a monthly basis, Indonesia recorded deflation of 0.02 percent (m/m) in August. Meanwhile, the manufacturing sector of Indonesia turned positive again.
Gold investment levels in Asia continue to hold close to their all-time highs, and many regional investors are asking questions about what is next for the bullish trend in precious metals. To answer this question, it is important to take another look at old-fashioned economics as a means for determining how price valuations are likely to unfold in the future. One of the most critical economic forces in these areas is the force of market inflation, and its influence on the yellow metal can be significant depending on the underlying fundamentals present in the global economy.
