Indonesian Inflation Sank to Lowest in 18 Months, Economists Say
Economists say inflation in Indonesia may have slowed to the lowest rate in 18 months in November on the back of weaker commodity prices, giving the central bank some scope to reduce key interest rates.
Six economists surveyed by the Jakarta Globe predicted a median forecast of a 4.2 percent increase in the consumer price index, a measure of inflation, this month from a 4.4 percent gain in October. It has not been that low since the CPI rose 4.16 percent in May 2010 from the year before. The Central Statistics Bureau (BSP) will release November inflation and October trade figures on Thursday.
Prices for metals and minerals including coal, nickel and tin have been falling. Prices for copper and iron ore, for instance, have fallen by more than 20 percent since August.
“Headline inflation will maintain its downtrend in the next few months as slowing global growth continues to keep a lid on commodity prices,” said Eugene Leow, an economist at DBS Group Research in Singapore.
“The CPI already inched to a 17-month low of 4.4 percent year-on-year in October and the figure is expected to decline to 4.3 percent in November.” Eugene says that the inflation outlook continues to be “benign.”
Bank Indonesia on Nov. 11 responded to the low inflation data in October by making a surprising cut in its benchmark overnight rate, the BI rate, by 50 basis points to 6 percent — the lowest level ever — in a bid to stimulate the economy amid the global financial crisis. Analysts had forecast a rate cut, but at half the size.
BI is aiming for an inflation rate of 4-6 percent this year and 3.5-5.5 percent next year. It predicts the domestic economy will grow 6.6 percent this year and ease slightly to 6.5 percent in 2012. It grew 6.1 percent last year.
Five economists contacted by Jakarta Globe said the BI was likely to hold the interest rate steady as the central bank assesses the impact of November’s rate cut and to maintain the attractiveness of Indonesian assets. Among interest rates across Southeast Asia, Indonesia’s is the highest.
Anton Hendranata, an economist at Bank Danamon, however, said that the BI should further lower its rate on the back of a trend of easing inflation.
Eric Alexander Sugandi, an economist at Standard Chartered Bank in Jakarta forecast annual inflation at 4.1 percent in November as “the rupiah’s weakening has yet to be translated into higher food prices.”
David Sumual, an economist from Bank Central Asia, forecast annual inflation in November at 3.67 percent, as the “food prices saw a significant fall in the third week of November.”
Inflation could fall below 4 percent in December, he said, but that does not mean the central bank would cut again next month.
“It last cut the rate to anticipate the global economic slowdown,” David said. “BI is likely to wait until the first quarter of 2012 or the quarter after before they change the level again.”
Destry Damayanti, chief economist at Bank Mandiri, predicted inflation in November at 4.14 percent and said that “BI will keep the rate steady until next year,” on concerns that further reducing the rate will make Indonesian assets less attractive and push investors to take their money elsewhere.
I attended Marketeers Dinner Seminar 2011 yesterday, and the speakers was talking about this too. Everyone is upbeat about Indonesia’s economy prospect, and some are even believe that the country will be the top 10 biggest economy in the world, surpassing UK and France. What’s your take on this? Yesterday’s speaker believe that Indonesia will not be much affected by the current crisis in 2011, but will get a bit of impact in 2012, which was reflected in the article above as it shown on its economy growth projection in 2012. One may ask, if its affected by the current economic turmoil, why the growth projection only drop by 0.1 percent in 2012? My answer is because of the nature of exported goods, and the domestic consumption. I like the statement from the speaker yesterday that as we export coffee to US or European countries, in times like this, they usually drink more coffee. But yes, our exported goods are not the one that really affected by the crisis. We don’t export cars, we don’t export machinery, we export more on our agriculture products, that explain why our economy is more stable the the rest. China, as of now, still struggling in increasing their domestic consumption and fighting inflation, even so, no one will doubt their capabilities to be the biggest economy in the world in the next 5 years.
Share us your views on this! Would you like to invest in Indonesia? Maybe expanding your business into Indonesia?