Indonesia’s Inflation Eased Further in February

Indonesia’s headline inflation rate improved for the second consecutive month to 3.2% yoy in February (3.3% in January), its slowest reading since December 2016. Core-inflation, which excludes administered prices and volatile food prices, also eased to 2.6% yoy compared to 2.7% in the previous month. Slower inflation was weighed down by all components of the basket with the exception of food prices. Food inflation rose for the third consecutive month to nine-month high of 3.4% yoy in February from 2.9% yoy in January mainly due to bad weather.

In contrast, cost of housing, electricity, gas and fuel, clothing and transport, communication and finance slowed to 3.7% yoy, 3.9%, and 1.4%, respectively in February. As the country’s inflation remains within Bank Indonesia’s target range of 2.50% to 4.50%, we believe Bank Indonesia (BI) would likely keep its policy interest rate unchanged at 4.25% in the next monetary policy committee (MPC) meeting on 22 March 2018.

Having said that, Indonesia’s economic growth momentum continues to be sustained going into 2018. The country’s manufacturing Purchasing Manager’s Index (PMI) returned strongly to the expansionary region, rose to a reading of 51.4 in February 2018 from 49.9 in January 2018 and 49.3 in December 2017. It was the strongest level since June 2016 and was supported by higher employment and increase in purchasing acitivity on the back of improving business conditions. IHS Markit also noted that the recovery in domestic markets outweighed the slight decline in overseas demand for Indonesian goods, indicating likely strong domestic demand supporting economic growth in 2018.

Separately, in Singapore, the country’s industrial production index (IPI) for the month of January 2018 rebounded strongly with a double-digit growth of 17.9% yoy from its decline of 3.4% in December 2017, its strongest yoy growth since August 2017. Excluding biomedical manufacturing, manufacturing output had also registered a robust increase of 21.6% yoy in January from 5.1% in December, its fastest expansion since October 2017. The better-than-expected growth was also supported by rebound in the biomedical manufacturing cluster, which registered its first positive increase of 2.5% yoy since October 2017. Also contributing to the robust IPI in January was the electronics cluster, which posted a growth of 32.4% yoy from 4.4% yoy, previously, driven by semiconductors, infocomms & consumer electronics and computer peripherals. Singapore Government is projecting the country’s real GDP growth to be in the range of 1.5-3.5% for 2018, from 3.6% growth in 2017.

Source: Affin Hwang Research - 2 Mar 2018