DBS Economy April inflation 3.9% YoY

April CPI inflation came in at 3.9% YoY, higher than 3.4% in March, but still below the 4-6% inflation target set by Bank Indonesia . This should strengthen the case that BI will freeze rates at 6.5% when it meets on policy tomorrow.
Food prices rose only 0.3% MoM in April after falling by -0.9% in March, thanks to rice harvests in recent months. Excluding seasonal factors, however, we calculate that consumer prices actually rose 0.7% MoM sa in April. Core CPI also grew by 0.5% MoM sa (3.7% YoY). This is no surprise to us, as the economy did not suffer an output collapse during financial crisis, and the output gap has widened to around 0.4% of GDP in 4Q09 and should have widened further in 1Q10. As judged by a positive output gap and the uptrend in commodities prices, we expect CPI inflation to rise to 5% YoY in mid- 2010 and 6% YoY in end- 2010. Higher inflation pressures will likely persuade BI to begin its monetary tightening cycle in 3Q10.


Source: DBS


Meanwhile, yesterday’s trade report showed that export growth remained strong at 46.6% YoY in March (56.5% in Feb), supported by the rises in commodities prices and the sustained recovery in global industrial cycle. Imports, however, significantly outpaced exports by surging 68.6% YoY in March (59.9% in Feb), probably an indication of accelerating recovery in domestic demand. Trade surplus therefore narrowed to USD 1.6bn from USD 1.7bn in the prior month.