Inflation Moderates in Both Indonesia and Thailand

Asean manufacturing Purchasing Managers’ Index (PMI) in September slowed to 50.5, its lowest level since July 2018, following a strong one month rebound of 51.0 in August. Among the seven Asean countries, Malaysia, Philippines and Thailand were the countries, which registered higher PMIs, while Indonesia, Singapore and Vietnam PMIs slowed during the month. Indonesia’s PMI remained above the 50 expansion level mark but slowed to a three-month low of 50.7, following August’s 26-month high of 51.9. However, Singapore’s PMI declined to 49.6 in September, contracting (below 50 level) for the first since April 2016. As for Vietnam, its manufacturing PMI slowed for the third consecutive month to a ten-month low of 51.5. Moving forward, IHS Markit noted that headwinds will continue to persist for the region despite confidence surrounding future output and continued job creation. It raised concerns about the drop in inventories and scaling back of input purchases by Asean manufacturers.

On a quarterly basis, Asean’s headline PMI averaged lower in 3Q18 at 50.6 following its four-year high of 51.1 in 2Q18. IHS Markit guided that the drop in Asean’s PMI in September was led by the slower expansion output and new orders while export sales had declined further. This was in line with the slowdown in the global manufacturing PMI which dipped to a two-year low of 52.2 in September compared to 52.6 in August dragged by weaker readings of emerging markets namely China, Russia, Taiwan, Brazil, Colombia, Indonesia, Vietnam, Turkey and Myanmar.

Separately, on the inflation front, Indonesia’s Consumer Price Index (CPI) eased more than expected in September to 2.9% yoy, after maintaining an inflation rate of 3.2% for two consecutive months in July and August. This was its slowest rate since August 2016 and below consensus of 3.1% yoy. The improvement in CPI was due to lower cost of food, processed food, beverages & tobacco, clothing, education, recreation & sports and transportation, communication & finance. The country’s inflation rate remains in Bank Indonesia (BI) 2018 target of 2.5-4.5%, and it is likely for CPI to remain within this range going forward following the central bank’s 5 rate hikes so far this year by a total of 150bps in its attempt to stabilise the weak Rupiah.

Meanwhile, in Thailand, inflation also slowed to a five-month low of 1.3% yoy in September, from 1.6% in August led by the moderation in cost across almost all components of the basket, except for apparel and footwears and transport and communication, which were unchanged since August 2018 at 0.4% yoy and 3.9% yoy, respectively. In its September Monetary Policy Report, Bank of Thailand (BOT) anticipates risks to its headline and core inflation forecasts to tilt downward in line with downside risks to Thailand’s growth projections and highly volatile fresh food prices. BOT maintained its headline inflation forecast at 1.1% in 2018 and 2019, remaining within its inflation target of 1-4%.

Source: Affin Hwang Research - 5 Oct 2018