Indonesia’s inflation picked up to a three-year high last month, on the heels of steady economic growth in the first quarter that was driven by stronger exports.
Consumer prices rose 3.47% in April from a year ago, the country’s statistics agency said Monday, beating the median estimate for 3.32% and nearing the top end of the central bank’s target range this year. The high cost of cooking oil and fuel have started to creep in, especially as millions of Indonesians splurge to celebrate the end of Ramadan.
Gross domestic product in the three months through March grew 5.01% from a year earlier. That compares with the median estimate in a Bloomberg survey for a 4.95% expansion, and a 0.7% drop in the same period last year.
Trade has been a bright spot for Southeast Asia’s largest economy, which has served as a key exporter of coal, palm oil and minerals amid a global shortage in commodities after Russia’s invasion of Ukraine. After a brief ban on coal shipments at the start of the year to secure domestic supplies, exports shot up to record levels in March.
“Recovery is still in place,” said Wellian Wiranto, an economist at Oversea-Chinese Banking Corp in Singapore. “Despite some headwinds including higher inflation risk, it should stay supported given the stabilization of the Covid-19 risk.”
That’s given Indonesia a timely boost as the highly transmissible omicron strain led to a surge in Covid-19 infections and deaths in February. The government restricted operations of shopping malls, restaurants and tourist spots, dampening private consumption that accounts for over half of GDP.
The country’s benchmark stocks index trimmed its losses to 3.9% as of 12:55 p.m. local time, after falling as much as 4.6% in morning trade. The rupiah was down 0.3% to 14,545 a dollar, its weakest since July 2021.
What Bloomberg Economics says
“Scope to delay the rate hike cycle is dwindling, especially with downward pressure on the rupiah building as the Federal Reserve’s rate hikes accumulate.”
Tamara Henderson, Asean economist
The first-quarter GDP numbers put the nation on track to hit its full-year growth target of 4.8%-5.5%, especially now that Covid-19 cases have declined sharply and most virus curbs scrapped. It will also be a crucial data point for the central bank as it assesses the pacing of its exit of monetary accommodation, against the backdrop of brewing price pressures and faster tightening by the Federal Reserve.
Bank Indonesia is watching core inflation, which accelerated to a two-year high of 2.6% in April, in setting its policy and may resort to another hike in the reserve requirement rate first.