Morning Briefing: Inflation Stays Tame, Manufacturing Gathers Pace

Deflation in August was attributable to Lowered Commodity Prices - Photo by Statistic Indonesia

JAKARTA (TheInsiderStories) – Good morning. Two key economic indicators released on Monday (03/09) showed that Indonesia’s economy is still on solid ground even as ongoing financial crisis in Turkey and Argentina continued to scare foreign investors.

First is the August inflation data. The Statistics Agency announced that Indonesia recorded a month-on-month deflation of 0.05 per cent and year-on-year inflation of 3.20 per cent in August.

The result is encouraging as the rupiah has slump and may impact the inflation rate. One explanation for the tame inflation is the volatile components, which recorded a month-on-month deflation of 1.24 per cent.

As the volatile components mostly comprised of imported items like agricultural commodities which show the government has been largely successful in reigning on price pressures through policies such as setting a retail ceiling price on rice, which carries a significant weighting in the inflation reading.

Second is Indonesia’s manufacturing activity. Indonesia’s Purchasing Managers Index rose from 50.5 in July to 51.9 in August, which is the highest since July 2014. A reading above 50 indicates expansion and below means contraction in manufacturing activity.

More encouraging is from the sub-reading of manufacturing hiring, which is at record high in August.

This expansion in manufacturing activity occurred despite export orders had declined for the past nine months and rate of input cost rose the sharpest in three years, which is due to the rupiah’s persistent devaluation.

The tourist visits statistics added positive sentiments to the state of the economy. The number of foreign tourists arrived in Indonesia rose 16.6 per cent month-on-month and 12.1 per cent year on-year to 1.54 million in August. This would increase the amount of Indonesia’s foreign exchange reserves, which in turn would help to halt the rupiah’s fall.

The notion that Indonesia’s economy is on solid footing is reinforced by Fitch Ratings which affirmed the nation’s sovereign rating at BBB with stable outlook, citing Indonesia’s low government debt burden as compared to peers and favorable growth outlook as key components in its assessment.

The positive data readings, however, were unable to counter the negative sentiment in the financial market. The Jakarta Composite Index ended down 0.8 per cent at 5,967.8 due to profit-taking motives after last week’s gain. Foreign investors pulled out Rp306 billion from the equity market on Monday.

The Rupiah, meanwhile, slumped to a 20-year low at 14,767 per US$1 and briefly flirted with the 14,800-mark. Despite the volatility, PT Bank Central Asia’s (IDX:BBCA) Chief Executive Jahja Setiaatmadja, said there’s no sign of a repeat of the 1998 financial crisis.

Moving to overseas, there is more signs that the ongoing tariff war between the world’s leading economies started to take a bite on Chinese economy. China’s Caixin Purchasing Managers’ Index fell to 50.6 in August, the lowest level in 14 months, with export sales recorded a decline for the fifth straight months.

May you have a profitable day.

TIS Intelligence Team, Email: theinsiderstories@gmail.com