Low inflation of 0.04% mom was recorded in May09, lower than ours and consensus estimates of 0.2% and 0.24%. Annually, inflation continued to ease to 6.04% yoy from 7.31% yoy in Apr09.
The relatively stable monthly inflation in May09 was mainly triggered by deflation in food (-0.06ppt) and clothing (-0.03ppt) groups. Adequate supply of food, despite the end of harvesting season, and the rupiah’s strengthening, we believe, have helped bring the food prices down.
We still think inflation would continue to ebb, particularly in the next two months as the high-base effect of last-year’s fuel price increase to continue to occur. Thus, we maintain our inflation forecast at 5.0% at year-end, which would provide more room for BI to lower the rate to 6.5%, with 25-bp cut likely to be done in the next governor board’s meeting on Wednesday (6/3) to 7.0%.
Trade balance held up relatively well, recording a surplus of US$2.07bn in Apr09 vs US$2.06bn in the previous month. Exports declined at slower pace of 22.6% yoy in Apr09 amid recovery in global demand and improvement in commodity prices. Whereas imports continued to deteriorate, declining 45.2% yoy in Apr09.
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