Inflation continues to creep higher
The Indonesian economy posted an encouraging result for GDP in Q2 2022, growing by 5.44% Y/Y, significantly above the 5.01% achieved in the previous quarter. In fact, the rate of growth also exceeded the consensus, which expected the rate of growth to be at most 5.20% for the quarter.
Compared to the previous quarter, the Indonesian economy expanded by 3.72%. This quarterly expansion is partly a regular economic pattern, in which Q2 covers the Ramadan and Muslim holidays, which always lead to higher consumption. The sectors that grew the most in Q2 2022 were transportation and warehousing, up 21.27%, and hotels and restaurants, up 9.76%. These two sectors combined underscore the fast recovery of the tourism sector in the country, albeit from domestic tourism.
The improvement of the economy was accompanied by a surplus of the current account for the quarter, which in fact, was significantly larger than the previous quarter's. While in Q1 2022, Indonesia's current account reported a small surplus of $407 million or 0.13% of GDP, in Q2 the current account reported a much larger surplus of $3,853 million or 1.14% of GDP. At the same time, the financial and capital account in the balance of payments in Q1 2022 recorded a smaller deficit than that of Q1 2022, reaching $1,085 million, below the $2,129 million deficit of the previous quarter. The large surplus in the current account combined with smaller deficit in the financial account led to an overall balance of payments surplus of approximately $2,389 million. Somewhat confusingly, the foreign exchange reserves of the Central Bank were reported to have fallen to a level of $136,379 million in June 2022. I have to dig further to find out the reason for the decline. But since the level of foreign exchange reserves remained ample, there was no cause for concern. Reserves declined further in July, to $132.2 billion.
The Central Board of Statistics also released the balance of trade data for July 2022. Exports decreased by 2.20% M/M, reaching $25,573.5 million, with non-oil exports also lower, by 1.64% to $24,198.4 million. At the same time, imports increased slightly, by 1.64% to reach $21,347.6 million, resulting in a trade surplus of $4,225.9 million, large, although lower than the previous month.
The Central Board of Statistics also released the inflation report, which showed that inflation continued to creep higher. July inflation was reported at 0.64%. Given that performance, Y/Y inflation stood at 4.94%, a level above the target corridor of the Central Bank. The Central Bank was of the view that the economy is improving steadily, and because it is closely watching the inflation trend, it took a preemptive and forward-looking step by raising the benchmark rate by 0.25% to 3.75% at its meeting in late August 2022.
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