March 2008 Inflation Outlook: Lower, but to stay above 7 percent

12 03 2008

In February 2008, the consumer price index (CPI) rose 0.65% MoM (month-on-month), after increasing by 1.77% MoM in January 2008. As such, the YoY (year-on-year) inflation rate increased slightly from 7.36% in January to 7.40% in February.

Prices rose in nearly all components of the CPI, except for the housing component that fell 0.01% in February. The component that registered the biggest increase was still the foodstuffs component (up 1.59% MoM), followed by the medical care component (up 1.56% MoM), the processed foods component (up by 0.88% MoM), the clothing component (up 2.31% MoM), the education component (up 0.04% MoM), and the transportation component (up 0.02% MoM).

The February inflation figure was lower than most economists had expected (we had expected the February inflation figure to reach 0.76% MoM). It appears that the upward pressures on rice prices have subdued somewhat with the commencement of the rice harvesting period in February. At the same time, the government has also taken some concrete steps to supply cooking oil to the market by intensifying market operations. As such, the increases in cooking oil prices were not as much as expected before. In addition, the government’s program to encourage people to use gas rather than kerosene for household usage has also helped to reduce the problem of kerosene scarcity in some regions.

Looking ahead, we expect the harvesting of rice to put downward pressures on rice prices in March. And we also expect the government to continue its market operations. This should help ease upward pressures on basic foodstuff prices. Furthermore, the lifting of import fees on some basic foodstuffs in the near term will also help to lessen the upward pressures on basic foodstuff prices in the near future. In addition, the currently strong rupiah will also help to reduce the prices of imported goods. As such, we expect monthly inflation to be lower in March than in February.

Against this backdrop, we predict that inflation will reach 0.09% MoM in March 2008, with the YoY inflation rate falling slightly to 7.24%. For the whole of 2008, we expect inflation to reach 6.12%. Download Report

Confidence Rebounds as Worries of Rising Food Prices Ease

12 03 2008
CCI March08

As fears of rising food prices subsided, consumer confidence rebounded in February. Optimism toward the economy’s future outlook increased as the economy turned out to be not as bad as initially perceived. Against this backdrop, the Consumer Confidence Index (CCI) recovered in February, up 2.5% to 80.4 from a two-year low of 78.4 in January.

Last month, consumers were burdened by rising food prices and kerosene fuel shortages. Job opportunities were also scarce. However, present conditions did improve somewhat, since the kerosene shortages were not so acute, while prices of rice eased even though the prices of some imported basic foodstuffs remained high. Against this backdrop, the Present Situations Index (PSI) edged up 0.2% to 60.2 in February. Yet despite the slight increase, the very low level of the PSI shows that consumers still have strong concerns over the state of the economy.

The relatively lower inflation in February raises consumer hopes of better living standards over the next six months. Looking ahead, the majority of consumers expect busier economic activities in the months ahead. Against this backdrop, the Expectations Index (EI) climbed from 92.1 to 95.5 in February.

As consumers are more upbeat on the nation’s outlook, consumer appetite for the purchase of big-ticket items increased in February. The proportion of consumers who plan to buy durable goods rose to 26.6% from 25.1% in January. Notably, buying intentions for goods often purchased on credit – such as houses, land, motorcycles and home appliances – all rose thanks to the declining loan rates. Also encouraging consumers to spend are the huge discounts on luxury goods (including audiovisual products).

The Consumer Confidence toward the Government Index (CCGI) fell 4.8% to a five-year low of 93.3 in February. Notably, consumers remain unconvinced in the government’s ability to spur growth (the index fell 7.2% to its lowest ever level of 86.6). In fact, consumers remain doubtful that the economy can grow quickly enough to generate new job opportunities in the months ahead. Download Report