JAKARTA, July 1: Indonesia’s inflation rate increased less than expected in June as the full impact of the government’s recent fuel price hike has yet to be felt in Southeast Asia’s largest economy.
Analysts expect July’s inflation numbers will better reflect the impact of Indonesia’s move to jack up subsidized gasoline and diesel prices on June 22. Some analysts expect the central bank will raise interest rates again as early as next week.
The statistics bureau said on Monday that annual headline inflation in June was 5.9 percent. That compared with May’s 5.47 percent and below the median 6.10 percent forecast in a Reuters poll.
‘The full impact from last month’s fuel price hikes is unlikely to have been priced in completely, and thus, one would expect a markedly higher July reading,’ said Gundy Cahyadi, economist for OCBC Bank in Singapore.
‘We still think that Bank Indonesia may adjust its (benchmark) rate higher by 25 basis points this month,’ he said.
Aldian Taloputra, economist at Mandiri Sekuritas in Jakarta, expects hikes of 25 basis points in the benchmark rate at Bank Indonesia’s July 11 meeting and again in August. He sees inflation peaking at about 8.2 percent in July.
Chua Hak Bin of Bank America Merrill Lynch said he expects inflation to peak at 8.5-9.5 percent by September-October, and that the benchmark rate will be increased another 25 basis point.
Until last month, the central bank had held the rate steady at 5.75 percent since February 2011. In mid-June, it surprised the market by raising both the overnight deposit facility rate and benchmark rate by 25 basis points, in an effort to contain rising inflation expectations and support the weak rupiah .
Those rate hikes came as Southeast Asia’s biggest economy was suffering a heavy sell-off of bonds and stocks, and the exchange rate for the rupiah neared the psychologically important level of 10,000 to the dollar.
GASOLINE PRICE RAISED 44 PCT
Higher inflation was expected after the government, following months of delay, raised the price of subsidised fuel by 44 percent for gasoline and 22 percent for diesel. In addition, rising food prices ahead of the Muslim fasting month, of Ramadan, which begins next week, contributed to higher inflation in June.
A Bank Indonesia official said last Friday the annual pace of inflation could be as high as 7.5 percent in July on rising demand during Ramadan. He estimated June’s inflation at 5.9 percent, the figure the government’s statistics bureau reported on Monday.
Bank Indonesia has been hoping inflation for this year would remain in the range of 3.5-5.5 percent.
On Monday, the statistics bureau said the country’s trade deficit in May narrowed to $590 million from April’s gap, revised to $1.7 billion.
Exports in May fell 4.49 percent from a year earlier, and imports drop 2.19 percent.
A poll had expected a trade deficit of $460 million for May. The country’s trade balance flipped into a surplus in March, after five consecutive months of deficits through February.
However, exports will be remain under pressure due to the weak outlook on China and declining commodity prices.
Manufacturing activity in Indonesia expanded in June, though at a slower pace while export orders fell for the first time in four months, HSBC Markit’s purchasing managers’ index survey showed on Monday. The index for June was 51.0, compared with 51.6 in May.
(agencies)
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