SE Asia’s Largest Economies Show Less Inflation Pressure

Consumer prices in Indonesia and Thailand grew at a slower pace than economists predicted last month, giving central banks in Southeast Asia’s two biggest economies scope to keep interest rates low for longer.

Annual inflation in Indonesia was 3.6% in March, compared with the median estimate of 3.8% in a Bloomberg survey of 19 economists. In Thailand, the measure was 0.8% versus a projection of 1.3%.

Lower food costs are helping restrain inflation, signaling the pick-up in prices in the region may be gradual. That eases pressure on policy makers to tighten with most economists predicting Bank of Thailand and Bank Indonesia will refrain from raising interest rates this year.

“The inflation pressure we are seeing in the region is not as worrisome as in the past,” said Gundy Cahyadi, an economist at DBS Group Holdings Ltd. in Singapore. “You’re going to see somewhat different pressures in each economy depending on how strong their domestic demand is. In that sense, we are a little more concerned with Indonesia compared with Thailand. But it’s not like inflation in Indonesia is going to shoot up significantly soon.”

Indonesia’s inflation details: Consumer prices fell 0.02% on a monthly basis in March, with those of rice, chili and eggs declining, as did transportation fares.

Core inflation, which excludes administered and volatile food prices, decelerated to 3.30% in March. The poll had expected a rate of 3.51%.

Indonesia’s central bank, which cut its key rate six times in 2016, targets annual inflation to be between 3 and 5% this year. Its next policy review is on April 19-20.

Thai inflation details:

- Consumer prices declined 0.5% from the previous month, compared with the median estimate for little change

- Core inflation was 0.6%, matching the estimate

- Still, commerce ministry raised 2017 inflation forecast to as high as 2.2% from 2% based on assumptions of 3% to 4% economic growth.

In Thailand, “with inflationary pressures at bay, we expect the central bank to remain supportive and keep its policy rate low at 1.5% throughout 2017,” Eugenia Victorino, an economist at Australia & New Zealand Banking Group in Singapore, said in a note.

Last week, the central bank left its benchmark interest rate unchanged at 1.50%, where it has been since April 2015. It next reviews monetary policy on May 24. Most economists expect no policy change through 2017.