Indonesia inflation hits new seven-year high after fuel price hike 

  Indonesia's inflation rate in September accelerated to its highest since October 2015 due to
  higher transportation costs following a fuel price hike, statistics bureau data showed on
  Monday. 

  The headline annual inflation rate rose to 5.95% in September, up from 4.69% in August, but
  came in slightly lower than a 6.00% rate expected in a Reuters poll. 

  The annual core inflation rate, which excludes government-controlled prices and volatile food
  prices, picked up pace in September to 3.21%, compared with 3.04% in August and 3.60%
  forecast by analysts. 

  "September's inflation was mostly affected by the rise in fuel prices and inflation in
  transportation sector," Margo Yuwono, head of Statistics Indonesia told reporters. 

  He warned that inflation could heat up further in October as a number of regions have not yet
  increased their transportation fares. 

  Indonesia raised subsidised fuel prices by about 30% in early September as the government
  moved to rein in ballooning subsidy bills. 

  Bank Indonesia (BI) in its September meeting hiked policy interest rates by 50 basis points in
  an effort to control inflation, which it expects will peak at slightly above 6% and core inflation
  at 4.6% by the year-end, compared to its target range of 2% to 4%. 

  Bank Danamon economist Irman Faiz said his bank has revised up its inflation outlook for
  end-2022 to 6.5% from previously 4.5%. 

  "On the policy front, we expect BI still has 100 bps of space to hike policy rate from the
  current level this year, as monetary policymakers have vowed to tame inflation down to their
  target range by 2H23," he said. 

  Source: Reuters 
 

  Indonesia’s manufacturing PMI at eight-month high
 
  Indonesian factories are in good shape as a key forward-looking indicator has reached the
  highest level in eight months thanks to strong order books. 

  According to London-based data firm IHS Markit, part of S&P Global, Indonesia’s manufacturing
  purchasing managers’ index (PMI) rose to 53.7 in September.  

  Up 2 points from August, that is the highest reading since January for the index, which
  measures factory activity based on a survey of 400 firms.  

  “Latest survey data was consistent with the strongest improvement in the health of Indonesia’s
  manufacturing sector since January,” S&P Global economist Laura Denman said in a press
  statement on Monday.  

  Indonesia’s manufacturing PMI has been on a steady upward trend since a low point in May,
  when it tanked to 50.8 points, though still signifying an expansion in activity by remaining above
  the threshold of 50 points.  

  Indonesia’s performance was slightly above the ASEAN headline PMI of 53.5 points and the
  second-best among emerging economies of the region, trailing only behind Thailand’s 55.7
  points.  

  The Philippines and Vietnam followed Indonesia with 52.9 points and 52.5 points, respectively,
  while Malaysia’s manufacturing PMI fell into contraction territory with a reading of 49.1 points,
  down from 50.3 points in August and the lowest figure this year. 

 
  Denman pointed out that a more robust environment for demand had led to the highest new
  orders for industries, which in turn led to an expansion of production and job creation.  

  A worsening global economic environment saw export demand slow down for a fourth
  consecutive month, but at the same time, the reduced inflationary pressure helped firms by
  pushing input-cost growth to a 20-month low.  

  Business confidence in the economy, however, was below the historical average.  

  “While some firms remained optimistic that current demand trends would be sustained, others
  expressed concerns regarding the overall effects that inflation will have on the wider
  economy,” Denman continued. 

  In response to the latest manufacturing PMI readings, Coordinating Economic Minister
  Airlangga Hartarto said average manufacturing utilization had increased since August,
  which included expansion in the motor-vehicle industry and the food-processing industry.  

  Although noting the possibility of a further decrease in overseas demand, the government
  appears confident that rising domestic demand can fill the gap.  

  “The expansion reflects a consistent recovery in the manufacturing industry, at least in the last
  few months, and a domestic economic recovery after the [COVID-19] pandemic,” Airlangga
  said on Monday.  

  Industry Minister Agus Gumiwang said that a production increase in September was visible in
  the electronics industry, which had seen significant laptop production due to government
  procurement, and in the non-metal mineral industry, with huge demand for cement,
  ceramics and glass due to public infrastructure and private-property construction.  

  In response to the lower export demand for manufactured goods, he said, the drop-in orders
  came from major trading partners, such as China, with continued COVID-19 related
  lockdowns, as well as the United States and Europe, with ongoing high inflation.  

  Although significant export reductions had been reported, overseas demand for crude palm
  oil had returned to normal levels after the recent export ban, he continued.  

  “Production activity played a key role in the higher readings in the index, which are supported
  by high domestic demand,” Agus said on Monday.  

  Center of Economic and Law Studies (CELIOS) director Bhima Yudhistira noted that seasonal
  factors affected manufacturing PMI readings, as seen in September last year, when the figure
  jumped to 53.7 points from 43.7 points in August.  

  Manufacturers were preparing for rising sales in November and December, ahead of
  Christmas and New Year’s Eve, he explained.  

  However, he warned about the impact of rising raw materials prices in the electronics and
  apparel industries, where the rupiah’s depreciation against the US dollar could add to
  imported inflation. 

  Further interest rate hikes by the central bank, meanwhile, could increase the cost of financing
  for industry, while also possibly reducing credit-funding consumer spending by middle-income
  earners already struggling with the recent fuel price hike.  

  This would impact spending on nonessential goods, raising questions about whether the
  domestic economy could fully plug the gap caused by lower export demand.  

  "The manufacturing industry has benefitted from relaxed pandemic restrictions, as upper-
  middle-class spending rose significantly. But with the threat of inflation and a possible
  global recession, it will be a challenge for the manufacturing industry to maintain a high
  PMI in the next few months," Bhima told The Jakarta Post on Tuesday. 

  Source: The Jakarta Post 

  Indonesia to offer investment incentives for new capital 

  Indonesia is preparing an incentives package to attract investment in its future US$32 billion
  capital city Nusantara, an official said on Tuesday (Oct 4), hoping to deliver on a key plank
  of President Joko Widodo's economic agenda. 

  The megaproject entails moving the capital of Southeast Asia's biggest economy from heavily
  congested Jakarta to an underdeveloped area on Borneo island. Early construction started a
  few months ago. 

  The government is finalising a regulation that would offer "several fiscal and non-fiscal
  incentives" for opening businesses in Nusantara, said Bambang Susantono, head of the
  Nusantara National Capital Authority, which heads the project. 

  The government has said it would only finance about a fifth of the cost of the new capital and
  that investors would bankroll the rest. 

  The Asian Development Bank has said it will help Indonesia raise funds. 

  Bambang added that the president would soon lead an investment promotion campaign and
  discuss business prospects with potential investors. 

  "Hopefully in mid-October, we will conduct this and invite potential investors and we can hold
  a dialogue," he said, adding that the government would explain what it wants to build and
  seek input on conditions that would be attractive for businesses. 

  The government may, however, need to counter doubts about the feasibility of the capital project. 

  A June survey by the Indonesian Centre for Strategic and International Studies found nearly
  59 per cent of 170 experts it interviewed were unsure Nusantara would materialise, citing
  uncertainty over funding and management. 

  Source: CNA