[Kabar-indonesia] Morgan Stanley: Indonesia: July Inflation in Line with Expectations

[Joyo at aol.com]

also: Thailand: July Inflation Dropped on Base
Effects; and Thailand: Current Account Balance Turned
Surplus on Weak Domestic Demand

Morgan Stanley Economists 
August 2, 2006

Indonesia: July Inflation in Line with Expectations

Deyi Tan (Singapore)

July inflation came in at 15.2%YoY, marginally higher
than our expectation of 15.1% but lower than the
market expectation of 15.3%. On a sequential basis,
prices rose 0.5%MoM, unchanged from June. Meanwhile,
core inflation also stabilised at 9.6%YoY (versus 9.6%
in June).

Inflation deceleration evident in most segments. Most
segments saw decelerating inflation. However, this was
most significant in the food segment (+15.8%YoY versus
+17.0% in June) with the contribution (+3.7%-pt versus
+3.9%-pt in June) from the food segment accounting for
most of the inflation decline we see in July.
Transport price inflation remained stable at 30.8%YoY.
Meanwhile, other segments such as processed food
(+11.6% versus +11.7% in June), housing (+12.7% versus
+12.8%), clothing (+9.6% versus +9.8%), healthcare
(+7.0% versus +7.3%) and education (+7.7% versus
+8.0%) saw milder price pressures.

Inflation trajectory in line with expectations so far.
The inflation data that has panned out so far are in
line with our expected trajectory. For August, we look
for inflation to come down to the neighbourhood of 14%
before falling into single-digit territory by October.

25bp or 50bp of cuts on August 8? The further
moderation in inflation opens up grounds for rates to
be cut on growth concerns on a more aggressive basis
in 50bp steps instead of the usual 25bp. We believe
that currency stability remains the central bank’s key
concern. Currency movements have been favourable so
far. However, amid the uncertainty surrounding the fed
funds rate decisions, we believe that Bank Indonesia
would likely choose to err on the side of caution at
this point by cutting in 25bp steps instead of having
to risk credibility from potential future reversals in
taking 50bp cuts.

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Morgan Stanley Economists 
August 2, 2006

Thailand: July Inflation Dropped on Base Effects

Deyi Tan (Thailand)

July inflation dropped markedly to 4.4% YoY (versus
+5.9% YoY in June) as the impact from the complete
rolling back of fuel subsidies kicked in last July. 
This was below market expectations of 4.6% YoY.  When
base effects affect headline YoY% significantly,
sequential numbers provide a better picture of
inflationary pressures. On that front, the
inflationary picture still remained subdued at 0.2%
MoM (versus +0% last year). Meanwhile, core inflation
also fell to 2.0% from 2.7% previously. On a
sequential MoM basis, core inflation is flat.

Prices in transport segment edged down on base
effects. In terms of the specifics, as we mentioned
previously, prices in the transportation segment rose
a base-affected 8.3% YoY (versus +13.9% YoY in June)
and accounted for most of the deceleration we see in
July. Nonetheless, the deceleration is also mirrored
in other segments but to a lesser degree. Food prices
rose 4.2% YoY (versus +4.6% YoY in June). Housing
inflation came off slightly to 2.3%. Meanwhile, price
rises in clothing (+0.3%), healthcare (+1.5%),
recreation & education (+0.9%) and tobacco & alcoholic
beverages (+9.9% YoY) were sustained at their June
pace.

Monetary policy implications. We believe that the
latest data on the inflation front likely support the
government’s stance to keep rates at 5%, which it
deems as a level that is appropriate for economic
stability and supporting sustainable growth in the
long run.

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Morgan Stanley Economists 
August 2, 2006

Thailand: Current Account Balance Turned Surplus on
Weak Domestic Demand

Deyi Tan (Singapore)

June’s current account balance improved unexpectedly
to a US$65 million surplus, following May’s deficit of
US$936 million. This is on the back of a
smaller-than-expected trade deficit (US$425 million
versus US$760 million in May) and a
larger-than-expected net income and services balance
(US$489 million versus -US$176 million in May), which
saw an unusual high despite the lull in travel and
transport in 2Q. On a quarterly basis, exports rose
16.3% YoY in 2Q (versus +17.9% in 1Q), while imports
slowed further to +3.2% YoY (versus +5.4% YoY in 1Q).
Both are partially attributed to base effects.

Global demand sustained Thai exports. The export front
continued to do well in June (+17.6% YoY on a BOP, US
terms basis). Broken down (in Bht terms), mineral fuel
and lubricants rose 105.6% YoY, contributing 2.3
percentage points to the headline number. Key export
segments such as machinery and manufactured goods also
expanded at a respectable pace (+12.9% YoY and +9.6%
YoY, respectively), of which computers (+18.0% YoY),
computer parts (+32.0% YoY) and passenger cars (+42.1%
YoY) saw sustained strength.

Meanwhile, in terms of export destinations, exports to
China were strong in June (+26.8% YoY versus +19.4 in
May). Exports to the EU15 weakened considerably (+4.7%
YoY vs +13.5% YoY in May), while those to Japan and
the US were sustained at 1.8% YoY and 16.2% YoY,
respectively.

Weak domestic demand results in slower import growth.
On the other hand, imports rose only 2.5% YoY (BOP
basis, US terms) (versus +9.0% YoY in May), suggesting
that domestic conditions remain less than favourable.
In particular, import momentum of raw materials and
intermediate goods (+1.1% YoY versus -0.5% YoY in May)
and capital goods (-0.1% YoY versus -3.1% YoY) remain
lacklustre, affirming that investment plans are being
postponed until political uncertainty clears up.
Meanwhile, imports of consumption goods are holding up
at +10.2% YoY.

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Joyo Indonesia News Service
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