Inflation surprisingly drops as food prices cool down

  Inflation slowed in October following a drop in a wide range of food commodities, but analysts
  expect the drop to be temporary as risks overshadow the economy in the remaining weeks of
  the year. 

  The annual headline figure eased to 5.71 percent last month, down from the 5.95 percent
  year-on-year (yoy) recorded in September, according to Statistic Indonesia (BPS) data
  published on Tuesday. 

  The latest figure was well below projections of several analysts. State-owned lender Bank
  Mandiri and financial research-firm Moody’s Analytics, for instance, had expected a reading
  of 5.91 percent and 6.1 percent, respectively. 

  “Food prices have weakened, and that muffled inflation in October,” Setianto, undersecretary
  for distribution and services statistics at BPS, told reporters on Tuesday. 

  Many food commodities sold at lower prices in October compared to the previous month, with
  red chili peppers contributing most to the monthly deflation, followed by eggs, poultry,
  cayenne pepper and cooking oil. Meanwhile, prices of rice and tempeh remained on
  an upward trend.  

  The monthly price drop in the food category far outweighed the increase in the transportation
  category, and the overall monthly deflation seen in October muted annual inflation, BPS
  explained. 

  The cooling down of food prices last month saw the volatile food price inflation drop to 7.04
  percent yoy from 9.02 percent yoy in the preceding month. 

  Meanwhile, administered price inflation, which measures government-mandated prices of
  goods such as most gasoline and other energy products sold at fixed prices, was unchanged
  at 13.28 percent yoy, reflecting the recent price hikes for subsidized fuel. 

  Core inflation, which excludes administered prices and volatile food prices, rose in October to
  3.31 percent yoy from 3.21 percent yoy in September. 

  At that level, core inflation, which Bank Indonesia (BI) has described as central to its interest
  rate policy, remains far below the headline figure. 

  Indonesia has so far been spared the much-faster increase in consumer prices experienced in
  many developed economies, such as the United States, the European Union and the United
  Kingdom, which have seen double-digit inflation rates hit multi-decade highs. 

  The IMF has warned that policymakers in the EU will face tough policy choices to address
  both weak economic growth and high inflation. Meanwhile, analysts expect the US Federal
  Reserve (Fed) to deliver another massive interest rate hike on Wednesday in a bid to tame
  inflation, which would create pressure on other central banks to follow suit. 

  The fourth and final Finance Ministers and Central Bank Governors (FMCBG) Meeting under
  Indonesia’s Group of 20 leadership last month raised concern about the recession risk in
  many countries of the world. 

  Deputy Finance Minister Suahasil Nazara told reporters on Tuesday that the latest data would
  help the government keep inflation in check through this year. 

  On top of that, the government would continue to ensure the smooth production and distribution
  of food commodities in anticipation of the seasonal hike over the Christmas and New Year
  period, he said. 

  “For this year, we will do our best to keep annual headline inflation below 6 percent,” Suahasil
  said in the ministry’s office. 

  Bank Mandiri economist Faisal Rachman warned that annual inflation would remain high at
  least throughout the first half of next year, hovering between 5 and 6 percent. For this year,
  the state-owned lender projects a rate of 6.27 percent, while the government has set a
  goal of ending the year with inflation no higher than 6 percent. 

  He attributed the risk to a second-round impact from the recent hike in subsidized fuel prices,
  meaning higher transportation costs would be passed through to prices of goods and services. 

  “This means both headline and core inflation could significantly heat up after the fuel price
  increase for the period ahead,” Faisal explained. 

  He said the government ought to anticipate the impact of a weakened exchange rate as central
  banks in many countries were aggressively normalizing their monetary policy, because a
  depreciated rupiah makes imported goods costlier, driving up what economists call imported
  inflation. 

  With inflation far above target and the threat of a further weakening exchange rate, Faisal
  expects BI to keep raising its benchmark interest rate to 5.5 percent through this year, up
  from the current level of 4.75 percent. 

  Bhima Yudhistira, executive director at Center of Economic and Law Studies (CELIOS),
  concurred that high inflation was likely to last until well into next year and would make
  Indonesians more cautious about their daily spending. 

  “Earnings of many Indonesians are unable to keep up with the rising prices. Therefore, there is
  a risk that it may slow down household spending,” Bhima told The Jakarta Post on Tuesday. 

  He implied this could impact GDP growth as private consumption accounts for more than half
  of the country’s gross domestic product, while weakening global economic growth may hit the
  country’s exports. 

  In light of the latest data, BI said on Tuesday that it expected full-year inflation to remain above
  its target range of 2 to 4 percent but come in much lower than previously expected. 

  Source: The Jakarta Post 
 

  Strong exports likely boosted Indonesia's economy in Q3
 - Reuters poll 

  Indonesia's economy grew at its fastest pace in over a year last quarter, buoyed by strong
  exports and consumption, but a slowdown in China and a widely expected global recession
  pose significant risks, a Reuters poll found. 

  Southeast Asia's largest economy has been enjoying an export boom for more than a year due
  to rising commodity prices. The resource-rich country has reported a $39.9 billion surplus for
  the first nine months of this year, just ahead of its full-year record surplus of $39.7 billion
  in 2006. 

  That has helped the country weather the U.S. Federal Reserve interest rate tightening cycle
  better than most of its peers. 

  The country reported annual economic growth of 5.44% in the second quarter, the strongest
  reading in a year, and is expected to have grown 5.89% last quarter compared with the same
  period a year ago, the median forecast of 18 economists in the poll showed. Estimates ranged
  from 5.23% to 7.50%. 

  The data is due to be released on Nov. 7. 

  "We expect growth to pick up owing to a low statistical base from Q3 2021 and the continued
  release of pent-up domestic demand driven by the economic reopening," noted Shivaan
  Tandon, emerging Asia economist at Capital Economics. 

  "Exports are also likely to have supported growth in Q3 although we think external demand will
  turn into a headwind over the coming quarters." 

  However, on a quarter-on-quarter basis, growth was expected to have slowed to 1.62% from
  3.72% in the second quarter. That was based on a smaller sample of forecasts. 

  A separate Reuters poll found GDP was likely to grow 5.2% this year, in line with Bank
  Indonesia's forecast, and then moderate slightly to 5.0% in 2023. 

  While rising commodity prices have served as a backstop, a significant slowdown in China -  
  Indonesia's biggest trade partner - would pose a significant threat to the export-led economy. 

  That along with Bank Indonesia's rate-hiking campaign, which has picked up pace in the last
  few months to tame inflation and prop up the rupiah, was likely to crimp domestic demand. 

  Bank Indonesia has hiked rates by a total of 125 basis points since August 

  Source: Reuters 

  Indonesia's manufacturing PMI slides to 51.8 in Oct 

  Indonesia's manufacturing purchasing managers' index (PMI) was recorded at 51.8 in October
  2022, down from 53.7 the previous month, Minister of Industry, Agus Gumiwang Kartasasmita,
  said on Tuesday. 
 
  According to the minister, the decline in PMI is in line with slowing global economic conditions,
  with the PMI in many industrial countries also weakening. 
 

  “Indonesia last month was 53.7, this morning, I received news in October 51.8. We are still
  grateful that we are still expansive, and we have experienced this level of expansiveness for
  14 consecutive months,” Kartasasmita said in Jakarta. 
 
  An index level above 50 indicates that the manufacturing sector in Indonesia is still relatively
  expansive, he noted. A level below 50 would indicate that the manufacturing industry is
  depressed or contracting.  

  Despite the decline, Indonesia's achievement is still much better than global industrial countries
  and ASEAN, the minister said. 

  
  "Big countries like China, Europe, South Korea, and Taiwan now have PMIs below 50," he
  pointed out. 

 
  As per Bloomberg data, Taiwan's S&P Global Manufacturing PMI has slid to 41.5 from 42.2.
  Similarly, Japan's manufacturing PMI has weakened to 50.7 from 50.8. Meanwhile, South
  Korea's PMI has risen to 48.2 from 47.3, but is still in contraction territory. 

  Meanwhile, Thailand's manufacturing activity has fallen sharply to 51.6 from 55.7. The same
  has been the case with China and Australia. 
 
  According to Kartasasmita, to keep the growth of the manufacturing sector expansive, the
  government is seeking to continue to maintain industrial demand. 
 

  "The government will have to help it with various policies, starting from incentives and
  stimulus. Later we will study it, we will review it, to help the industry not to experience a
  slowdown in its manufacturing industry," he added. 
 

  He is targeting to maintain manufacturing PMI above the level of 51 till the end of this year. 
 

  "We hope that it will remain healthy, any point above 51. (Although) above 50 is still expansive,
  but we are pushing or trying to get above 51," the minister said. 

  Source: Antara