Indonesia Inflation Rate Slowed Slightly to 3.82%

ASEAN purchasing managers’ index (PMI) rose above 50 level to 50.4 in August, after falling to 49.3 in July. According to IHS Markit, the PMI showed an improvement across the region with the pace of improvement the quickest in three months. Among the seven ASEAN countries covered by IHS Markit, five of the countries reflected an expansion in August, with the exception of Thailand and Myanmar. While the improvement in the PMI may be due to the end of Eid al-fitr festive season which happened in June-July this year, we believe the recovery also reflected a global economy that continues to strengthen with growth becoming more entrenched and synchronised across major economies.

Singapore’s PMI rose to 51 in August, after the dismal performance in July at 47.9. Both Malaysia and Indonesia also showed improvement, with the manufacturing PMI came in at 50.4 and 50.7 respectively in August, from 48.3 and 48.6 respectively in the previous month. Philippines, which showed a strong expansion of 52.8 in July, moderated to 50.6 in August. On the other hand, Thailand and Vietnam was relatively unchanged at 49.5 and 51.8 respectively (Thailand at 49.6 while Vietnam at 51.7 in July).

According to IHS Markit, “the ASEAN manufacturing sector returned to growth in August, with the PMI showing an improvement in overall business conditions. The expansion was supported by a mix of strengthened demand from both domestic and external sources.” Most of the positive expansion was due to renewed expansion in both total new orders and output, where total new inflows grew at the fastest pace for four months during August, supported by renewed growth in exports sales. Growth in the order book volumes also lifted production level with output across the region increased for the first time since May. Despite the positive outlook, we believe some manufacturers are adopting a cautious approach towards purchasing activity and stocks. Preproduction stocks fell for an eleventh month, though at a slower rate as compared to July.

Seperately, Indonesia’s inflation rate slowed further to 3.82% in August (3.9% in July), which may the reason for Bank Indonesia (BI)’s decision to cut its policy rate in August MPC meeting. The inflation rate was lower than market expectations at 3.95% and slightly slower than the inflation rate in July at 3.88%. The core inflation rate, which excludes government-controlled and volatile food prices, was down from 3.05% in July to to 2.98% in August.

Source: Affin Hwang Research - 8 Sept 2017