US economy shows slowdown, S&P 500 Slightly Down.

The United States stock market, the S&P 500, closed slightly down by -0.1% throughout last week's trading. Economic data for the week showed a slowdown in both industry and the labor market. This sparked concerns that the Fed's interest rate increases were too aggressive and could trigger a recession. The ISM Manufacturing Purchasing Managers Index data appears to have fallen more deeply than anticipated, which is an indicator measuring economic activity in the services sector. The labor market is also in the spotlight after the JOLTS report showed the number of job vacancies was much lower than expected.

Meanwhile, inflation expectations had to be readjusted after oil-producing OPEC+ countries, including Saudi Arabia and Russia, last week decided to cut oil production, leading to a big rise in crude oil prices and a surge in energy stocks. For the Federal Reserve, higher oil prices will mean higher inflation, which will put pressure on them to keep interest rates in check.

March Inflation 4.97% YoY, Lower Than Expectations

Indonesia's inflation report for March 2023 shows an increase of 0.18% compared to the previous month, and 4.97% on an annual basis. This figure was lower than the consensus estimate of 5.12%, so it recorded the lowest inflation in five months. Price pressures mainly come from transportation and prices of basic foodstuffs. By sector, transportation and foodstuffs, beverages, and tobacco had the highest inflation rates, namely 13.7% and 6.0% annually, respectively. For April, it is estimated that monthly inflation will increase further due to the Eid holiday and transportation costs which may peak. The core CPI index came in below consensus estimates at 2.94% annualized for the sixth month in a row, indicating weak consumer purchasing power ahead of the festive period. This level is usually at 3.03% on average in the eight years before Eid al-Fitr celebrations. From an income perspective, consumer income currently lacks support. For example, civil servants and retirees have not yet received their full THR (50% performance allowance/Tukin remains intact) and plans to cut workers' salaries by 25% could result in lower real salary income, especially for the lower middle segment. Based on LPS data, low-end savings account balances (<IDR100 million) also fell 4.2% this year, indicating low-income individuals may be impacted by rising prices.

Government Plans to Import Rice to Reduce Food Inflation

The Indonesian government has decided to import 2 million tons of rice throughout 2023 to reduce food inflation which has soared due to extreme weather and climate change. The import will be carried out to maintain government rice reserves which are supervised by Perum Bulog. The import of 2 million tons of rice will be carried out in stages this year with the first import target being 500,000 tons. The national average rice price in April was recorded to have increased by 8.7% yoy to IDR 12,816 per kg, compared to IDR 11,790 per kg in March.

Key Takeaways:

The United States stock market, the S&P 500 experienced a slight decline of -0.1% during last week's trading due to a slowdown in the economy and labor market which sparked concerns that the Fed's interest rate increase was too aggressive and could trigger a recession. Additionally, oil-producing OPEC+ countries, including Saudi Arabia and Russia, last week decided to cut oil production, leading to a large increase in crude oil prices.

For the domestic economy, Indonesian inflation for March 2023 showed an increase of 0.18% compared to the previous month, and 4.97% on an annual basis, lower than the consensus estimate of 5.12%. Price pressures mainly come from transportation and prices of basic foodstuffs. The core CPI index came in below consensus estimates at 2.94% annualized for the sixth month in a row, indicating weak consumer purchasing power ahead of the festive period. This level is usually at 3.03% on average in the eight years before Eid al-Fitr celebrations. In addition, the Indonesian government will import 2 million tons of rice throughout 2023 to reduce food inflation which has soared due to extreme weather and climate change.

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