Benign
Inflation and Improving of Trade Surplus
CPI Review
Inflationary
pressure is still benign in October 2012. BPS recorded inflation reached 0.16%
mom is slightly higher than our forecast (0.13% mom) and consensus (0.13% mo-m).
Inflation in October was also higher compared with inflation rate in September
which only reach 0.01% mom. Inflationary pressure is mostly coming from the
rising prices of prepared food, household expenditure, gold jewelry and tuition
fees for university / college.
Meanwhile,
food prices are still experiencing deflation -0.43% mom mainly come from lower
prices fish, eggs, beans, garlic, cooking oil, salt fish, spinach, vegetables,
and red onion. Deflation also occurs in the transport and communication sector
(-0.02% mom), which mainly comes from the decline in air freight
tariff.
Furthermore,
price increases in the housing sector (0.42% mom) especially comes of rising
servant wages, house rent and contracts. While inflation in prepared foods
sector (0.38% mom) came mainly from higher prices of noodles, rice with meal,
cigarettes and cigarette filters. Then, inflation in the clothing sector in
October (0.94% mom) was still sourced from the rising price of gold jewelry.
Along with the monthly inflation increasing in October, resulting in yearly
inflation rate also increased from 4.31% y-o-y in September 2012 to 4.61% y-o-y
in October 2012.
Due to the
rise in inflation in October was largely sourced from non-food price increases
and energy which impact to increasing core inflation. The yearly core inflation
rate increased from 4.12% y-o-y in September 2012 to 4.59% y-o-y in October 2012
mainly from rising prices of gold jewelry, school fees, and contract / rent
homes.
Trade
Review
Indonesia's
trade balance was surplus again in September 2012. It is caused by an increase
in exports exceeded imports. Indonesia's exports rose to US$ 15.9 bn (up by
13.21% mom) in September 2012 from US$ 14.05 bn in August 2012. The increase was
driven by higher exports of non-oil and gas exports (up by 16.59% mom to US$
13.13 bn), while oil and gas exports has decreased (down by -0.46% mom to US$
2.77 bn). Meanwhile, oil and gas exports decline due to falling price of crude
oil. While the rise in non-oil exports caused by a increase in exports of coal,
palm oil, machinery / electrical equipment, machinery / mechanical equipment,
Aircraft & part, and mineral seed.
Meanwhile,
Indonesia's imports also rose by 11.12% mom to US$ 15.35 bn in September 2012
from US$ 13.81 bn in August 2012. The increase in imports was driven by higher
oil and gas imports (up by 3.93% mom to US$ 3.44 bn) and non-oil and gas imports
(up by 13.39% mom to US$ 11.91 bn). Furthermore, oil and gas imports increase
due to rising import of oil products and natural gas, while imports of crude oil
fell. Moreover, the rise in non-oil exports caused by a increase in imports of
machinery / electrical equipment, machinery / mechanical equipment, Iron &
Steel, Vehicle & parts, Plastics & article thereof, Organic Chemical,
and cereal.
Furthermore,
the increase in exports and imports of Indonesia in September was driven by the
improving demand of Indonesia's main trading partners and caused by the carry
trade of export and import transactions are pending in August due to Lebaran
holiday can only be done in September.
Meanwhile,
Indonesia's trade balance also increased from a surplus of US$ 0.23 bn in August
2012 to a surplus of US$ 0.55 bn in September 2012.
Market
Implication
FX
Markets
With the
improvement of Indonesia's trade balance in September 2012 which surplus again,
would make Indonesia's balance of payments has improved. The trade surplus is
due to the increase in exports faster than imports. Indonesia trade balance
surplus increase to US$ 0.55 bn in September 2012 from US$0.23 bn in August
2012. Overall in Q3 2012 Indonesia trade balance was surplus of US$ 0.52bn
better than Q2 2012 which still deficit to -US$2.26 bn. This condition will
impact to reducing on the weakening Rupiah pressure. This will make the Rupiah
may strengthen in the medium and long term. We still expect the Rupiah will be
strengthened to around Rp9400/USD on the end of
year.
Bond
Markets
Meanwhile,
yearly headline inflation increase from 4.31% in September 2012 to 4.59% in
October 2012. Similarly, yearly core inflation also rose from 4.12% y-o-y in
September 2012 to 4.59% y-o-y in October 2012. Amid the relatively benign of
yearly inflationary pressure in October and the surplus again of trade balance
in September, making room for the Bank Indonesia has kept its benchmark interest
rate at 5.75% pa and FASBI rates at 4.00% p.a. This will create increased
confidence in both foreign and domestic investors. This condition makes the bond
market became excited again. We expect bond yields still have room to go down
even though limited.
source: Bank International Indonesia
