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November 2015 Inflation Outlook
November 30, 2015 10:09 WIB

Consumer prices fell further in October. After the 0.05 percent deflation in September, the prices of goods and services dropped by 0.08 percent in October. As a result, inflation slowed to 6.25 percent on an annual basis and to just 2.16 percent on a year-to-date basis. 

October’s deflation owed to falling prices in the foodstuffs component (-1.06 percent MoM) and easing pressures in the other components. The prices of prepared foods rose the most by 0.40 percent, followed by prices in the medical care component (+0.29 percent), the clothing component (+0.25 percent) and the education component (+0.16 percent). Meanwhile, prices in the housing and transportation components eased by 0.09 percent and 0.02 percent, respectively.

The benign inflationary pressures in October were supported by a lack of seasonality drivers in addition to the impact of the government’s third economic policy package (which included reductions in the prices of some fuel products as well as cuts to industrial electricity tariffs). For November, we predict easing monthly inflationary pressures and a significant drop in the annual inflation rate. As noted, the government hiked subsidized fuel prices back in November 2014 in an effort to create a more sustainable state budget. However, the impact of this move should disappear in November 2015 and bring down the inflation rate. On the other hand, El Nino phenomenon effect creates an increasing pressure of several foodstuffs price such as chili and vegetables.

Given the absence of major seasonal events coupled with the high base effect, we predict inflation in November 2015 of 0.14 percent MoM, translating into YoY inflation of 4.83 percent.

Bank Indonesia maintained its benchmark policy rate at 7.5 percent, with the Lending Facility and Deposit Facility rates also unchanged at 8.0 percent and 5.50 percent, respectively. As the annual inflation rate will decline significantly whilst the CAD is also predicted to become more manageable, BI will have the opportunity to lower its policy rate. However, uncertainty in regard to when the Fed will finally hike rates means that BI has less room to lower interest rates. In December, we expect the BI rate to be kept at its current level.

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Trade Outlook

Inflation Outlook July 2015: Higher Pressure during the Festivities
July 29, 2015 08:00 WIB

After rising 0.5 percent MoM in May, consumer prices posted a 0.54 percent increase in June. On a YoY basis, headline inflation edged up to 7.26 percent from 7.15 percent. Prices rose more briskly in the food components (+1.12 percent MoM), whereas prices in the non food components were relatively more stable (+0.18 percent MoM). The June inflation figure was lower than our projection of 0.62 percent MoM and also below the median market consensus of 0.65 percent MoM. ?? In June, prices in the foodstuffs component rose significantly (+1.60 percent MoM). By comparison, prices in the other components did not increase so much. On a monthly basis, the prepared foods component rose by 0.54 percent, followed by the medical care component (+0.32 percent), the clothing component (+0.28 percent), the housing component (+0.23 percent), the transportation component (+0.11 percent), and the education component (+0.07 percent).

Looking at the supply side, BPS has forecast lower production of some crops in the May-August period when compared to production during the peak harvesting season (January-April). In the May-August 2015 period, the production of dry milled grain and corn are predicted to reach 24.9 mn tons (-24.3 percent) and 6.2 mn tons (-35.1 percent), respectively. However, the output of dried soybeans is expected to rise 33.6 percent to 328 thousand tons. For these crops, full year production is projected to show an increase, boosted by a larger harvesting area and improved productivity.

In July, seasonal factors related to the fasting month of Ramadan and Idul Fitri are predicted to lift consumer prices. Strong demand during Idul Fitri (especially for basic foodstuffs, prepared foods, and clothing) will keep prices high compared to the previous month. Moreover, as residents of urban areas travel back to their hometowns, transportation costs and spending will also go up. We predict inflation in July 2015 of 0.82 percent MoM, translating into YoY inflation of 7.14 percent.

The benchmark rate was kept at its current level of 7.50 percent, with the Deposit Facility rate and the Lending Facility rate also kept unchanged at 5.50 percent and 8.00 percent, respectively. Given the heightened inflationary pressures over the near term and the central bank’s goal of keeping the current account deficit in check, we see that the BI rate is likely to be maintained at its current level over the short term.

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CPI & SBI Outlook

Inflation Outlook March 2015
March 27, 2015 09:26 WIB

Inline with our earlier projection, the headline inflation rate fell further in February 2015. On a MoM comparison, the CPI showed higher deflation of 0.36 percent MoM, or translating into YoY inflation of 6.29 percent. By component, the food and non-food components declined by 0.61 percent and 0.22 percent, respectively.

Prices rose in all CPI components except the foodstuffs and transportation component. In the foodstuffs component, prices fell 1.47 percent due to the start of the harvesting season while in the transportation component prices fell 1.53 percent MoM, largely driven by the impact of the government’s move to cut retail prices of fuel in January. By contrast, prices in the clothing component rose the most (up 0.52 percent), followed by the prepared foods component (+0.45 percent MoM), the housing component (+0.41 percent MoM), the medical care component (+0.39 percent MoM), and the education component (+0.14 percent MoM).

In March, seasonality from the harvesting season will result in downward pressures on prices in the foodstuffs component. The harvesting of crops (especially those grown in paddy fields) will drive rice prices down. March average rice prices remain above the February average level, but shows a declining trend. From the production side, the government targets 73.4 million tons of milled dry grain rice production in 2015, or 3.7 percent higher than last year’s production.

The price of several commodities tend to increase such as red onions, cooking oil, and flour. At the same time, the collapse in global oil prices will help to keep domestic fuel prices stable. Hence, we predict March inflation of 0.16 percent MoM, translating into YoY inflation of 6.38 percent.

In the latest development, Bank Indonesia maintained its benchmark BI rate at 7.50 percent, with the Deposit Facility rate and the Lending Facility rate unchanged at 5.50 percent and 8.00 percent, respectively. The BI’s goal of achieving a healthier current account (2.5-3.0 percent of GDP) was one of the main factors behind BI’s move to keep the BI rate at its current level. However, we continue to believe that there is still scope for further cuts in the benchmark rate given the benign outlook for inflation over the near- term

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Forecast For October 2015

Exports US$ 12.80 bn
Imports US$ 11.90 bn
Trade Balance US$ 0.80 bn

Forecast for 2015

Exports US$ 182.80 bn
Imports US$ 180.30 bn
Trade Balance US$ 2.50 bn

DRI Forecast for Jul 2015

MoM(%) 0.50
YoY(%) 7.15

End of period(% p.a) 7.50

Forecast for 2015

Inflation(%) 5.04
SBI(% p.a) 7.50