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Tag: inflation

  • Malaysia’s April headline inflation up 1.4%

    Malaysia’s April headline inflation up 1.4%

    Headline inflation rate rose by 1.4% year-on-year (y-o-y) in April 2018, slightly higher than 1.3% year-on-year registered in the preceding month as transport inflation rebounded from a negative territory logged for two months to positive at 0.4% y-o-y, said MIDF Research.

    Amid unfavourable base effects, MIDF Research foresees headline inflation rate to average at 2.6% this year, supported by inflation rate for 1Q18 which registered at 1.8% compared to 4.2% in the same period last year.

    “We expect inflationary pressure mainly from fuel-related items to calm, consistent with gradual rise in global commodity prices on top of pass-through effect from a strengthening ringgit, re-subsidisation of domestic fuel price and withdrawal of GST.”

    As inflationary pressure remains steady, it anticipates Bank Negara Malaysia to maintain its current monetary policy with no more hikes in overnight policy rate for the rest of 2018 barring any pleasant upward surprises in domestic economic growth.

    It noted that food inflation continues to dip but moving forward, there is a potential for food inflation to rise in the upcoming months due to rising demand for Ramadan and Hari Raya celebrations.

    It expects 2018’s fuel-related inflation to moderate amid of unfavourable base effects, re-subsidisation of domestic fuel price and high likelihood of a downward adjustment of global commodity prices in 2H18 from the current temporary factors which pushed the prices up.

    MIDF also foresees inflation rate across all states will moderate below 3% in 2018 amid of unfavourable base effects and zero rated GST.

    “Looking forward, we foresee inflation level will gradually increase buoyed by moderating global growth, steady rise in commodities prices and tight labour market conditions.”

    The Consumer Price Index (CPI) increased 1.4% in April 2018 as compared to the same month last year, after indices for food & non-alcoholic beverages (+2.6%), restaurants and hotels (+2.2%), health (+2.1%), housing, water, electricity, gas & other fuels (+2.0%), furnishings, household equipment & routine household maintenance (+1.8%) and education (+1.1%), all recorded increases, according to the Department of Statistics.

    Chief Statistician Malaysia Datuk Seri Dr Mohd Uzir Mahidin said the overall index was also affected by the increase in the transport group by 0.4% in April 2018 as compared to the 1.5% decrease recorded in March 2018. Meanwhile, the CPI for the period January-April 2018 increased 1.7% as compared to the same month last year.

    The Statistics Department also reported that three states surpassed the national CPI rate of 1.4% recorded in April 2018 as compared to April 2017, which are Kuala Lumpur (+1.9%), Selangor & Putrajaya (+1.6%) and Penang (+1.5%).

    FXTM global head of currency strategy & market research Jameel Ahmad said while the inflation reading continues to suggest that the economy is encountering a period of lower inflation, it sees risks that this outlook could change over the coming months.

    “There has been a drastic change in investor appetite towards the US dollar, which has crumpled emerging market currencies across the globe. This has also impacted the ringgit, which currently appears to be at risk to falling back towards 4 against the dollar and is likely to do so, if traders continue to stock up on the US dollar.”

    As a result of the ringgit weakening, he said import price pressures are likely to increase over the next two to three months and this will consequently result in higher inflation potential.

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  • Asian currencies rise as dollar off despite higher U.S. inflation

    Asian currencies rise as dollar off despite higher U.S. inflation

    Asian currencies firmed on Thursday, boosted by heftier global risk appetites as the dollar slipped despite stronger-than-anticipated U.S. inflation and a rise in Treasury yields.

    Tracking a rally in Wall Street, Asian stocks brushed aside U.S. inflation data that showed that January core CPI posted the
    largest gain in a year, raising pressure on the Federal Reserve to be more aggressive in raising U.S. interest rates this year.

    The dollar index weakened to a near 2-week low, after the rebound in equities, evoking the idea that the greenback might be in a period of persistent weakness.

    “The dollar advanced against other currencies when US CPI inflation was released but pared the gains and weakened later as
    U.S. equities proved more resilient, with the VIX index pulling back further below 20,” said Qi Gao, FX strategist (EM Asia) at
    Scotiabank.

    “Continued risk appetite sent Asian currencies higher this morning, I think risk appetite will likely continue as synchronized global growth is expected to boost the EUR and JPY, while bolstering EM Asian currencies as long as risk appetite sustains.”

    The Malaysian ringgit led gains among regional currencies as it firmed 0.6%, while the Indian rupee strengthened 0.3%.

    The Philippine peso, the worst performing Asian currency in 2018, also rode on the positive sentiment to strengthen 0.3%, on track to end five-consecutive sessions of losses.

    The Singapore dollar firmed 0.1% after data showed that the city–state’s annual exports in January surged despite another decline in electronics shipments, helped by a jump in sales of petrochemical products.

    The Korean won, Chinese yuan and Taiwan dollar did not trade on Thursday, because of the Lunar New Year holiday.

    The rupiah strengthened 0.5%, even though Indonesia’s statistics bureau on Thursday said the country in January had a US$670 million trade deficit, while a Reuters poll had forecast a US$190 million surplus.

    The baht firmed 0.5% on Thursday.

    Thailand’s central bank left its benchmark interest rate unchanged on Wednesday, near record lows, saying it expects inflation to stay largely subdued even as Southeast Asia’s second-largest economy gains further momentum.

    The central bank said the economic outlook had improved on the back of strong global demand for its exports, but recovering
    domestic demand and inflation developments should be monitored.

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  • Bank of Indonesia Says Limited Room to Cut Interest Rates

    Bank of Indonesia Says Limited Room to Cut Interest Rates

    Bank Indonesia Governor Agus Martowardojo emphasized on Wednesday (24/01) that there is limited room for lowering interest rates due to the United States Federal Reserve’s plan to increase its benchmark rate, and the need to keep inflation in check.

    “[Room] to adjust the seven-day reverse repo rate is probably very narrow under the current conditions,” Agus told reporters. He added that the central bank will rely more on other monetary instruments to drive the economy.

    Agus said Bank Indonesia will relax reserve requirements by July. Lenders are currently required to keep a minimum reserve of 6.5 percent of their total rupiah deposits at the central bank at any time, comprising daily reserve of 5 percent and a two-week averaging reserve of 1.5 percent.

    Agus said Bank Indonesia will increase the averaging portion to 2 percent to allow lenders to be more flexible in managing their liquidity.

    It will also relax the averaging rules for foreign exchange deposits and sharia-compliant banks.

    The central bank will also allow larger bond purchases as a portion of banks’ loan to deposit ratios, and improve secondary reserve requirements for macroprudential liquidity buffers.

    Agus said the external risk stems especially from the Fed’s plan to increase its benchmark rate, while there are also fears that geopolitical conditions may increase pressure on financial market stability, including in Indonesia.

    Bank Indonesia will also pay more attention to inflationary pressures, especially on volatile goods. Prices of rice, chili peppers and other horticultural items are expected to greatly contribute to inflation this month, he said.

    “We welcome the government’s decision to import rice, and as rice harvest will also take place soon, the prices will be under control,” Agus said.

    Bank Indonesia has set an inflation target of between 2.5 percent and 4.5 percent this year.

    The central bank last cut its benchmark interest rate in October to 4.25 percent from 4.5 percent, as inflation continued to decline at the time. This also complemented the bank’s monetary easing, which saw it cut by 200 basis points from December 2015 until last year.

  • Malaysia Inflation rises 3.5% in Dec 2017, full year 3.7%

    Malaysia Inflation rises 3.5% in Dec 2017, full year 3.7%

    Malaysia’s consumer price index (CPI) expanded 3.5% to 120.9 in December 2017 from 116.8 in the corresponding month of 2016, mainly driven by the transport segment, which was up 11.5%.

    For the full year of 2017, CPI rose 3.7% compared with the same period in 2016.

    According to the Department of Statistics, other major groups which recorded increases in December 2017 were food & non-alcoholic beverages (+4.1%), restaurants and hotels (+2.6%), furnishings, household equipment & routine household maintenance (+2.4%), health (+2.3%) and housing, water, electricity, gas & other fuels (+2.2%).

    On a month-on-month basis, CPI increased 0.1% in December 2017. Core inflation, which excludes most volatile items of fresh food, as well as administered prices of goods and services, rose 2.2% in December 2017 compared with the same month of the previous year.

    MIDF Research expects the headline inflation rate to average at 2.6% in 2018 amid unfavourable base effects.

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  • Singapore inflation rises 0.6% in November

    Singapore inflation rises 0.6% in November

    Singapore’s headline consumer price index (CPI) rose a slightly-faster-than-expected 0.6 per cent in November from a year earlier, data showed on Tuesday (Dec 26), as private road transport costs edged higher.

    That is the fastest year-on-year increase since July, when headline CPI also rose 0.6 per cent from a year earlier.

    Core inflation, which excludes accommodation and private road transport costs, remained unchanged from the previous month at 1.5 per cent, the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) said in a joint press release on Tuesday (Dec 26).

    Private road transport costs rose 4.1 per cent in November from a year earlier, data from the Singapore Department of Statistics showed.

    Accommodation costs fell by 3.9 per cent in November, moderating from the 4.2 per cent drop in the previous month. The smaller decline reflected the dissipation of the dampening effect of the disbursement of Service & Conservancy Charges (S&CC) rebates on the year-ago change in accommodation costs in October, the joint release said.

    Services inflation edged up to 1.6 per cent in November from 1.5 per cent in October. This was on account of a rise in airfares, which was a reversal from the decline registered in the previous month, as well as a larger increase in telecommunications services fees and holiday expenses which more than offset the smaller increase in recreational & cultural services fees.

    Food inflation was unchanged from the previous month at 1.5 per cent, as the pace of increase in prices for non-cooked food and food services was similar in both months.

    The overall cost of retail items registered a smaller 0.5 per cent increase in November compared to the 0.9 per cent increase in October. This largely reflected a fall in the prices of personal care products, as well as a smaller rise in the prices of personal effects, the joint release said.

    FUTURE OUTLOOK

    Looking ahead, the MAS expects core inflation to be around 1.5 per cent in 2017 and average between 1 and 2 per cent in 2018. MAS said in a media release that the CPI is projected to come in at around 0.5 per cent this year and stay in the range of between 0 and 1 per cent next year.

    However, Francis Tan, economist at UOB, said he does not expect major risks of a higher inflationary trend, but noted that all eyes could be on MAS’ next policy meeting in April.

    “The market expectation, and our expectation, is that the MAS, in their next policy meeting in April 2018, will start to normalise. I think that goes to show that among all the central banks in the world, they are more or less looking at or already started the monetary policy normalisation and the MAS is likely to continue to likewise,” said Mr Tan.

    “Of course we are not looking at a very steep increase in the S$NEER slope even at the start. We are only looking at a 0.5 per cent per annum at the start, but with more data coming in, the central bank will definitely tweak its policy appreciation stance.”

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  • Indonesia’s Inflation Eased in September to 3.72%, Weighed by Food Prices

    Indonesia’s Inflation Eased in September to 3.72%, Weighed by Food Prices

    Inflation in Indonesia continued to ease in September as some basic food commodity prices dropped, suggesting full-year inflation will be limited despite a pick up in the first few months of the year.

    September’s consumer price index, a gauge of inflation, rose 3.72% compared with the same period a year ago, slowing from August’s 3.82% rise, the official Statistics Agency said Monday. Compared the month before, prices rose 0.13%, after falling 0.07% in August.

    The median forecast from a survey of 10 economists by The Wall Street Journal was for 3.70% year-over-year inflation. The median prediction for on-month inflation from seven economists polled was 0.10%.

    Inflation was stoked by a 1.03% increase in education costs in September, compared with August. But a 0.53% fall in basic food prices mitigated the impact on headline inflation, the agency added.

    Core inflation, which excludes volatile food prices and those determined by the government, picked up to 3.00% compared with a year ago, August’s 2.98%, the first increase in many months, which may indicate an early recovery in consumers’ purchasing power.

    Although inflation is likely to continue retreating for the rest of the year, Bank Indonesia isn’t expected to cut interest rates again next month, after two consecutive 0.25-percentage-point cuts recently.

     

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  • Inflation in August estimated to be lower at 0.02 percent

    Inflation in August estimated to be lower at 0.02 percent

    The Central Java representative of Bank Indonesia (BI) predicted that the countrys inflation in August would be lower at 0.02 percent from 0.14 percent in July.

    “The decline in inflation was a result of a cut in the prices of a number of essential goods,” Rahmat Dwisaputra of the Central Java representative of the central bank said here on Tuesday.

    Rahmat said the inflation should be stable at a lower level, adding after Ied ul Fitr inflation would be as expected by the government.

    “In June and July inflation rates were quite high. That is the trend. We will stabilize the inflation that price hike is no longer high,” he said.

    In addition to the falling prices of essential goods especially volatile foods such as chili, garlic, and red onion, the cost of education is also expected to contribute to the decline in inflation in August.

    The time when the people have to pay extra for education has been over that there is less factors contributing to inflation.

    “In September, inflation is even expected to remain low with low consumption by the people,” Rahmat said.

    With the stability maintained the purchasing power of the people is expected to be unaffected, he added.

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  • Vietnam’s annual inflation expected at 2.6%

    Vietnam’s annual inflation expected at 2.6%

    Inflation this year is forecast at 2.6 per cent amid fluctuations in prices on world markets and adjustments in the cost of public services, according to the latest report from the government watchdog, the National Financial Supervisory Commission (NFSC).

    While average inflation during the first five months of this year hit 4.47 per cent, the NSFC believes it will fall towards the end of the year due to stability in food and restaurant prices.

    Figures from the General Statistics Office show a 0.53 per cent decline in the CPI in May against April, primarily due to sharp falls in food prices. May’s CPI rose 3.19 per cent year-on-year.

    Forex

    The NSFC also pointed out that exchange rates will be vulnerable against high foreign currency demand due to the rising trade deficit, where Vietnam may see its trade balance change from a surplus in 2016 to a deficit of about 3.5 per cent of total exports this year.

    Its calculations show that if the VND/USD exchange rate rises 1 per cent, inflation will increase by 0.17 per cent. The US Federal Reserve raising short-term interest rates in small adjustments has yet to put pressure on the exchange rate, however.

    It’s very likely, though, that “the VND will be under pressure by the US Fed’s roadmap of raising interest rates in the long run, along with unpredictable changes in the prices of the Chinese Yuan and Japanese Yen,” the NFSC said, adding that efforts are required to ease pressure on exchange rates and drastic measures needed to tackle bad debt.

    Earlier, BMI Research, a Fitch Group company, predicted that further Chinese Yuan weaknesses could prompt a slight devaluation of the VND in 2017 by the SBV to preserve export competitiveness.

    By end-May, the VND was down more than 1 per cent against the USD this year, according to State Bank of Vietnam (SBV) figures.

    Interest rates

    Vietnam is now more eager than ever to tackle the scale of bad debts in its banking sector, especially with the amount sold to the Vietnam Asset Management Company making up 10.08 per cent of total outstanding loans by end-2016.

    The government issued Decree No.61/2017 on May 16 on the verification of the initial price of bad debts and the formation of a council for bad debt auctions. A draft law on support for credit institution restructuring and bad debt settlement is also being finalized, and a decree on the settlement of credit institutions’ bad debt may be approved as soon as June 20.

    But while the NSFC report noted that measures to settle bad debts will help reduce interest rates, SBV Deputy Governor Ms. Nguyen Thi Hong made it clear in a meeting last week that lowering interest rates will remain a challenge for the central bank in 2017.

    “Some commercial banks have increased interest rates on certificates of deposit and VND deposits already, mainly for terms of over 12 months,” she said, adding that by the end of last month, the central rate was up 1 per cent from the same period last year.

    In a related note, the NFSC’s calculations show that the country’s ratio of credit-to-GDP has continuously increased since the last quarter of 2015, reaching 11 per cent in the first quarter of this year. This is the second highest level in the 2009-17 period, after the 13 per cent recorded in the first quarter of 2011.

    At end-May, credit had risen 5.7 per cent compared to the same period last year.

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  • 4.36 Percent Inflation Expected in 2017

    4.36 Percent Inflation Expected in 2017

    The Governor of Bank Indonesia Agus Martowardojo projects year-on-year inflation rate in 2017 of 4.36 percent, an increase compared to late 2016 of 3.02 percent, mostly attributable to pressure from administered prices.

    Agus said yesterday that the projection was based on the movement in the Customer Price Index (CPI) that was down in January to May 2017 and lower compared to January to April 2017.

    “At the meeting of the Board of Governor in April, the year end inflation rate is predicted at 4.63 percent (year on year/yoy). In May 2017, it will drop to 4.36 percent (yoy),” Agus said.

    Lower annual inflation forecast, according to Agus, was due to correction to inflation impacts of administered prices.

    Bank Indonesia views that inflation pressure from administered prices, particularly raise in electricity price for 900 VA category will not be as high as predicted before.

    Moreover, controls on food prices and other components in volatile foods category from January to May 2017 have convinced the central bank that inflation rate can be curbed.

    Inflation due to volatile foods as of May 2017 stood at 3.26 percent (yoy), whereas inflation contributed by administered prices hit 9.14 percent (yoy).

    “We will see the year-end inflation rate if the current forecast remains the same as has been targeted before,” he said.

    Bank Indonesia expect to set inflation target through out this year in the range of 4 percent plus or minus 1 percentage points. Inflation control is also the reason behind the central bank’s decision to hold the benchmark 7-Day Reverse Repo Rate at 4.75 percent for the eight consecutive time on May 18.

    Meanwhile, the government in the 2017 state budget (APBN) assume the inflation rate at four percent.

  • Australia’s retail slugout adds to worry over weak inflation

    Australia’s retail slugout adds to worry over weak inflation

    A fierce price war among retailers is threatening to keep a lid on improving inflation in Australia, compounding the problems of policymakers struggling to support still-weak domestic demand.

    An uptick in consumer inflation has lowered the chance of another rate cut this year, but competition from global retailers such as Amazon.com Inc is set to keep prices under pressure – good news for shoppers but worrying for the central bank.

    The country’s biggest retailers are suffering from a long spell of deflation that is unlikely to subside soon. Amazon and German supermarket chain Kaufland want to fortify their global presence Down Under and will join recent entrants such as H&M, Uniqlo and Aldi.

    The Reserve Bank of Australia (RBA) said on Friday that “heightened competitive pressures” in the retail sector were among key factors keeping inflation subdued.

    “The arrival of further new foreign retailers will be an important influence on final retail prices over the next few years,” the RBA said in its quarterly statement on monetary policy in which it expects underlying inflation may only fully return to its 2-3 percent target band by mid-2019.

    Worried about deflation risks, the RBA slashed rates twice last year to a record low 1.50 percent. It is widely expected to hold rates until mid-2018 but subdued consumer prices could become a trigger for a move lower, and push the Australian dollar weaker.

    “While consumers will benefit from lower prices, ongoing weakness in retail inflation is a key factor weighing on the broader inflation outlook,” said ANZ economist Jo Masters.

    There was some relief headline consumer prices rose in the first quarter, taking the annual pace to its fastest since 2014 at 2.1 percent. But five of 11 sectors – about 30 percent of the CPI basket – saw price falls. Prices for women’s clothing, for example, were at their cheapest on record.

    A study by Capital Economics shows price increase in what it classifies as ‘luxuries’ – clothing, alcohol and recreation – halved to 0.6 percent from 1.2 since the start of last year. Inflation in ‘essentials’ – food, electricity and insurance – accelerated to 3.4 percent from 1 percent.

    “In other words, it now costs much more to live, but not much more to have fun,” said economist Paul Dales, adding that this situation was hitting household spending on discretionary items. “It implies that consumption growth will be a little bit weaker.”

    Clothing and homeware prices have fallen due to cut-throat competition among major retailers, which only intensified with the arrival of foreign chains to Australia.

    While there are few details on how Amazon will position itself, the retail giant’s expected entry this year will worsen the pain of a retail industry that has been largely insulated by a housing boom and pick-up in global growth, analysts said.

    Jefferies expects Amazon to capture between A$3 billion to A$8 billion ($2.25-$6 billion) of sales in Australia – about 30 percent of current online retail sales.

    Australian retailers are already being forced to change their business models but four major firms going into voluntary administration in the first two months of the year highlights the deepening crisis.

    Not surprisingly, the sector has been shedding jobs, with more workers lost in the year to November 2016 than any other industry.

    “Foreign retailers are attracted by relatively high margins in Australia and will continue to enter the market as long as that additional margin is on offer,” said Masters of ANZ.

    So far, only 16 percent of the world’s top 250 retailers have a physical presence in Australia, according to Deloitte.

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  • Indonesia records inflation of 0.09% in April

    Indonesia records inflation of 0.09% in April

    After seeing deflation a month earlier owing to the harvest season, the country recorded monthly inflation of 0.09 percent in April on account of increases in the prices of most commodities.

    Inflation in April brought annual inflation to 4.17 percent year-on-year (yoy), the Central Statistics Agency (BPS) announced on Tuesday.

    “I think inflation at 0.09 percent in April remained in line with what the government is trying to manage because there will be bigger challenges in May and June,” said BPS head Suhariyanto in a press conference.

    The agency warned prices of food commodities could increase in May due to rising demand during Ramadhan.

    In June, Suhariyanto said, prices would rise as an effect of the second hike of electricity rates for 900 volt-ampere (VA) capacity in May.

    “The electricity rate increase will occur in May, but the impact will only be seen in June because most customers of 900 VA are post-paid type rather than prepaid,” he said.

    The price increases in April occurred in administered prices, particularly electricity and fuel, as well as in a number of food commodities such as garlic, chicken, tomato and dogfruit.

    Meanwhile, price decreases in April were seen in major food commodities such as red and green chili, rice, sugar, beef and chicken eggs. (bbn)

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  • Indonesia`s inflation predicted to be low in April

    Indonesia`s inflation predicted to be low in April

    Bank Indonesia predicted that the countrys inflation would not be too high this month with falling prices of foodstuffs amid harvest time .

    “The inflation in April is expected to be not too high as a result of the harvest time,” head of the Monetary Economic Policy Department of the central bank Dody Budi Waluyo said.

    The administered prices might increase as a result of the governments plan to raise the electricity tariff in June this year, but falling prices of foodstuffs would keep the inflation low, Dody said here on Thursday.

    Last month, the country had a deflation of 0.02 percent as said by the Central Bureau of Statistics (BPS). BPS said the deflation was also attributable to falling prices of a number of foodstuffs like rice, red chili, garlic, eggs and fresh fishes.

    “The significant decline in the prices of a number of main foodstuffs resulted in the deflation in March,” BPS said.

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  • Singapore inflation rises 0.2% in December

    Singapore inflation rises 0.2% in December

    In a sign of a tepid increase in inflation, the Monetary Authority of Singapore reports that consumer price inflation rose to 0.2% in December from 0.0% in November, due to a larger increase in private road transport cost, which rose 1.7% over the month because of higher petrol prices and parking fees. In comparison, MAS Core Inflation eased to 1.2% from 1.3% in the previous month, because of lower retail goods inflation.

    Services inflation edged up to 1.6% from 1.5% in the preceding month, mainly on account of a faster pace of increase in holiday expenses, which more than offset the larger contraction in telecommunication services fees. Food inflation was 2.0% in December, unchanged from the previous month.

    Price increases for both non-cooked food items and prepared meals were broadly stable. Accommodation cost fell by 3.8% in December, like the previous month, reflecting continued softness in the housing rental market.

    Overall retail goods inflation eased to 0.0% in December from 0.2% in November, largely because a fall in the prices of personal care products following the rise in November. For the whole of 2016, CPI-All Items inflation came in at -0.5% for the second consecutive year.

    CPI less imputed rentals on owner-occupied accommodation (CPI-ex OOA) rose by 1.2% in December Inflation as measured by CPI less imputed rentals on owner-occupied accommodation (OOA) picked up to 1.2% in December from 1.0% in the preceding month, reflecting the stronger pickup in the cost of private road transport.

    For 2016 CPI less imputed rentals on OOA rose by 0.3%, higher than the 0.1% increase in 2015. MAS Core Inflation was slightly lower at 1.2% in December MAS Core Inflation was 1.2% in December, slightly lower than the 1.3% in November, as the decline in retail goods inflation more than offset the increase in services inflation. For the whole of 2016, MAS Core Inflation rose to 0.9%, from 0.5% the year before.

    On the external front, MAS says it expects imported inflation is likely to rise modestly on the back of a turnaround in global commodity markets. Global oil prices are expected to average higher in 2017 compared to last year, “although upward pressures would be capped by existing inventories as well as an anticipated increase in US crude oil output. Domestically, overall cost pressures should be muted,” says the market regulator.

    MAS also reports a pullback in hiring, as conditions in the labour market have slackened. “This will cap underlying wage growth, even as non-labour business costs have eased. The subdued growth environment will also constrain the extent of cost pass-through to consumer prices.

    For the whole of 2017, MAS Core Inflation is expected to average 1–2%, compared with 0.9% in 2016. Energy-related components are projected to contribute positively to inflation in 2017, while the temporary disinflationary effects from budgetary measures will fade.3

    However, the increase in core inflation will be gradual, given the absence of more generalised demand-induced price pressures. CPI-All Items inflation is projected to pick up to 0.5–1.5% this year, from -0.5% in 2016, largely reflecting the rise in private road transport cost,” it concludes.

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  • Indonesia seen holding rates on rupiah, inflation concerns

    Indonesia seen holding rates on rupiah, inflation concerns

    Indonesia’s central bank is widely expected to keep its benchmark policy rate unchanged on Thursday as it monitors the rupiah’s movement at a time of global uncertainty and price pressures at home.

    Bank Indonesia (BI) cut its benchmark six times last year, by 150 basis points, to 4.75% to aid economic growth. During 2016, the inflation rate was low, current account deficit comfortable and the rupiah relatively stable.

    All 22 analysts in a Reuters poll predicted the central bank will leave the main rate unchanged on Thursday.

    “BI’s monetary policy easing cycle may have come to an end,” the World Bank said in a report published on Tuesday.

    It said the space for easing is more constrained than in October – when BI made its last trim – “given US interest rate normalisation and downward pressure on the rupiah”.

    Capital Economics said BI is also likely to consider risks of higher inflation due to government plans to hike some liquefied petroleum gas prices and electricity tariffs.

    “BI expects this to push inflation towards the top of its target range, weakening the case for further monetary loosening,” the consultancy wrote on Monday.

    Higher Inflation Seen

    Earlier this month, BI deputy governor Perry Warjiyo said that although the central bank has room for more easing, it needs to “calibrate” an expected acceleration in inflation when deciding its main rate.

    He said inflation may rise to 4.6% in 2017 due to adjustments in administered prices, from 3.02% in December.

    Warjiyo, hinting at a hold on Thursday, said BI may prefer to use liquidity management tools to support economic growth, while its main policy rate will be used to maintain financial market stability.

    Some analysts said South-East Asia’s largest economy still needs loosening to lift sluggish growth, which slowed to 5.02% in the third quarter and may slow again to 4.97%, according to BI’s forecast.

    Out of seven analysts who gave views for the benchmark at the end of March, three saw BI making a 25-basis-point cut to 4.50% while the other four projected no change.

    Taimur Baig, Deutsche Bank’s chief Asia economist, said “Indonesia’s economic turnaround, which seemed apparent in the first half of last year, appears to have stalled” and that might prompt BI to cut before April.

    DBS economist Gundy Cahyadi also sees a cut, but not until 2017’s second half.

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  • Indonesia’s inflation rate at seven-year low

    Indonesia’s inflation rate at seven-year low

    Indonesia’s inflation slowed to the weakest in almost seven years and fell below the central bank’s target, bolstering the case for further interest rate cuts by Bank Indonesia (BI).

    Consumer price gains eased to 2.79 per cent last month from a year earlier, compared with economists’ 3.02 per cent estimate.

    Prices fell 0.02 per cent in August from the previous month, the National Statistics Office said yesterday, adding that the annual rate was the lowest since December 2009.

    “If you ask me now whether there is room for (monetary) easing, the room is more open. But whether it would be used or not, it is up to BI,” Coordinating Minister for Economics Darmin Nasution said after the lower-than-expected data was announced.

    Mr Nasution said BI had wanted to cut the benchmark rate “since last month” but then decided to delay to better introduce its new policy rate, the seven-day reverse repo rate, which stands at 5.25 per cent.

    The authorities have set their 2016 inflation target at 3 per cent to 5 per cent and expect consumer price gains to end the year at around 3.5 per cent.

    “Easing inflation – along with stability in both the current account deficit and exchange rate – has created policy space for rate cuts,” said economist Ng Weiwen at Australia & New Zealand Banking Group (ANZ).

    “The degree of easing will be dependent on the size of tax amnesty inflows.”

    ANZ expects the Indonesian central bank to lower its new benchmark rate by another 25 basis points to 5 per cent as soon as its September meeting, Mr Ng said.

    Indonesia’s 10-year bond yield slid four basis points to 7.07 per cent yesterday afternoon in Jakarta, set for the biggest daily gain in three weeks. Shares fell, with the Jakarta Composite Index extending its drop to 0.9 per cent and set for the lowest close since Aug 15.

    Falling airfares, inter-city transport costs and cheaper food were the biggest factors driving the monthly drop in prices, said National Statistics Office deputy Sasmito Hadi Wibowo.

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