Indonesia’s Inflation Slows, While Trade Swings to Surplus

A vendor waits for customers at a street market in Jakarta. The Central Statistics Agency says on Tuesday (7/1) the consumer price index eased to 6.7 percent last month, the lowest since June last year. (Reuters/Enny Nuraheni)

Jakarta. Indonesia’s trade balance has swung to a surplus in May, while inflation slowed in June, bolstering Bank Indonesia’s case for keeping its benchmark interest rate steady next week.

The country recorded a trade surplus of $69.9 million in May, following a record deficit of $1.97 billion in April, as exports picked up and imports slowed, the Central Statistics Agency (BPS) announced on Tuesday.

The consumer price index also eased to 6.7 percent last month from 7.3 percent in May, the BPS reported on Tuesday. Last month’s inflation rate was the lowest since June 2013, when it stood at 5.9 percent.

“In all, although the data was somewhat weaker than expected from a growth perspective, it was positive from a vulnerability perspective and suggests that Indonesia’s current-account adjustment, though lagging southern peer India, remains on track,” Wai Ho Leong and Bill Diviney, Singapore-based economists at Barclays, said in a report on Tuesday.

The Barclays economists noted that both exports and imports in May were weaker than expected, with exports falling 8.1 percent year-on-year to $14.83 billion and imports contracting 11.4 percent to $14.76 billion.

There was a $1.4 billion trade surplus in the non-oil-and-gas sector, thanks to resurgent of palm oil exports and decline in machinery imports.

For oil and gas there was a deficit of $1.33 billion.

Gundy Cahyadi, an economist at DBS Bank, said the country’s exports are still contracting, which should force the central bank to keep monetary policy tight to reign in imports further.

“Keeping the trade balance — and thus, the current-account balance — in check remains a key priority for now. [Bank Indonesia] is likely to maintain its tight monetary policy for a while longer,” Gundy said, adding that he expected the central bank to maintain its benchmark rate at 7.5 percent for the rest of the year.

That despite inflation having started its declining trend toward the end of this year, as the impact from last year’s subsidized fuel price increase dissipates.

By Tito Summa Siahaan on 08:08 pm Jul 01, 2014