Indonesia CPI declined 0.14% mom, dragging the on-year inflation to 3.44% in Mar10 from 3.80% a month earlier on lowers food prices. The figure was lower than our and market consensus.
Core inflation, an inflation gauge that excludes the impact of seasonal food and energy price movement, continued to decline to 3.56% yoy in Mar10 (vs. 3.88% yoy in Feb10). The decline, we think, was more related to lower global commodity prices and the rupiah’s rise rather than an indication of falling purchasing power.
Mild inflationary pressure in the 1Q10 or 1.0% yoy still gives room for BI rate to stay unchanged at 6.5% at least until the second half of the year. The inflation likely to remain tame for the next few months partly helped by the seasonally low food prices during harvesting season. But, we expect it to pickup along with improving domestic demand and rising administered prices in 2H10. We currently maintain our YE10 inflation and interest rate forecast at 6.3% and 7.25% respectively.
Exports grew slightly slower by 57.1% on year in Feb10 (vs.59.0% yoy in Jan10), as commodity price softened and demand from Asia moderated. Imports, on the other hand picked up quite strongly, growing by 59.9% yoy suggesting that domestic demand is recovering. Trade balance declined to US$1.7bn in Feb10 from US$2.0bn in Jan10.
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