How Indonesia's 33% subsidized fuel price hike will affect inflation numbers

Inflation predicted to jump to 7.8%.

According to DBS, Indonesia's trade and inflation numbers are due this week. Inflation numbers will be closely watched as the full brunt of the average 33% hike in subsidized fuel prices will be reflected in July. 

DBS expects headline inflation to push up to 7.8%YoY in July, up from 5.9% YoY in June.July numbers would also reflect some second round inflationary effectsfrom the fuel price hike and seasonal uplifts in the run up to Ramadan in early August. The food component ofthe CPI basket is another area to watch.

Here's more:

Since February,food prices have been elevated, driven up by restrictive import policies. These policies have since been relaxed, and normalization offood pricesislikely in the coming months. For 2H13, monthly YoY inflation is expected to average around 8%.

Unfavorable commodity prices and robust domestic demand growth have resulted in a persistenttrade deficitforthe most part ofthe 15 months ending May.

The trade balance has been volatile overthe time period ranging from a surplus of USD550mn to a deficit of USD1.9bn and there has not been
a narrowing trend in the deficitjust yet.

A sizable current account deficit can be viewed as a symptom of economic overheating especially since funding con-cerns have come to the fore and the rupiah has been on a weakening trajectory.

The central bank hastaken decisive steps overthe pasttwo months, raising the policy rate and the FASBI depositrate by a cumulative 75bps.

A generally tight monetary policy stance is likely to be maintained over the medium term and this should also moderate import growth, thereby easing pressure on the current account.

Exports and importsforJune are projected to reach 4.8% YoY and 1.1% YoY respectively, implying a trade deficit of USD730mn.