Faster Inflation Registered in Indonesia and Thailand in July

The Asean’s manufacturing Purchasing Managers’ Index (PMI) slowed from 51 in June to 50.4 in July, its lowest level since March 2018. IHS Markit guided that the slower manufacturing acitivity at the start of the second half of 2018 was due to weaker growth in new orders and output despite a rebound in export sales. This was also in tandem with the global manufacturing PMI, which slowed from 53 in June to 52.7 in July. Growth across Asia remained subdued compared to that seen in Europe and the US.

Among the seven Asean countries in its survey, Indonesia and Malaysia were the two countries to report higher PMI readings, while Vietnam, Philippines, Singapore and Thailand PMIs slowed in July. Indonesia’s PMI rose to 50.5 in July, after reaching a five-month low of 50.3 in June, supported by the improvement in operating conditions. Meanwhile, Malaysia’s PMI expanded from 49.5 in June to a five-month high of 49.7 in July, led the rise in output but the PMI remained below the 50 level mark since February 2018. IHS highlighted that Asean’s manufacturing PMI may slow further as the index may have reached its peak, while the global trade war could also affect demand for ASEAN manufactured goods. It further noted that “growth in new orders has now underperformed output for four straight months, hinting that a slowdown in production could persist in coming months”. With the rate of global manufacturing PMI easing in July, we expect Asean’s exports and industrial production to stay healthy albeit at a slower growth in 2H18.

Separately, on the inflation front, Indonesia’s consumer price index (CPI) rose to 3.2% yoy in July, as compared to 3.1% in June, led by increases in almost all components of the basket, except for processed food, beverage, tobacco and transportation, communication and finance products. However, the country’s headline inflation remained in Bank Indonesia’s (BI) target range of 2.5-4.5%. Core-inflation, which excludes administered prices and volatile food prices, rose to 2.9% yoy in July, compared to 2.7% in June, its fastest pace since December 2017.

Meanwhile, in Thailand, inflation rose higher to 1.5% yoy in July from 1.4% in June, reaching its fastest rate since January 2017, mainly driven by the increase in cost of motor fuel. Although Bank of Thailand (BOT) anticipates inflation to average in the lower end of its inflation target range of 1-4% at 1.1% in 2018, Thailand’s Finance Minister had recently stated that BOT should refrain from raising its current interest rate of 1.50% too soon due to “the relatively resilient foreign-exchange rate and the contained pace of fund outflows”. The policy rate has been left unchanged since April 2015.

Source: Affin Hwang Research - 3 Aug 2018