INFLATION IN SEPTEMBER AT 0.27 PERCENT

The development of commodity prices, in general, in September 2014 showed an increase. Based on the monitoring result of Central Bureau of Statistics (BPS) in 82 cities in September 2014, there was an inflation of 0.27 percent, or an increase in the Consumer Price Index (CPI) from 113.58 in August 2014 to 113.89 in September 2014. Inflation rate by calendar year (January-September) 2014 was 3.71 percent and inflation rate year-on-year (September 2014 to September 2013) at 4.53 percent.

Inflation occurred due to price increase as shown by the increase in indexes of some expenditure groups, namely: processed foods, beverages, cigarettes and tobacco 0.51 percent; housing, water, electricity, gas and fuel 0.77 percent; health group 0.29 percent; and education, recreation and sports 0.68 percent. Meanwhile, the groups which experienced a decreased of index are: foodstuffs 0.17 percent; clothing group 0.17 percent; and transportation, communications, and financial services 0.24 percent.

Some commodities whose prices increased in September 2014, include: red chili, household fuel, electricity tariff, rice, academy/university tuition, purebred chicken meat, noodles, rice with side dishes, clove cigarettes, filter cigarettes, house contract rates, house rent rates, domestic servants wages, junior high school tuition, and high school tuition. Meanwhile, commodities whose prices decline include: red onions, fresh fish, air transports rates, gold jewelry, beef, spinach, stink beans, oranges, inter-city transport fares, and gasoline.

In September 2014, expenditure groups that contributed to inflation include: processed foods, beverages, cigarettes, and tobacco 0.09 percent; housing, water, electricity, gas, and fuel 0.19 percent; health group 0.01 percent; and education, recreation, and sports 0.05 percent. Meanwhile, expenditure groups that contribute to deflation include: foodstuffs 0.02 percent; clothing group 0.02 percent; clothing group 0.01 percent; and transportation, communication, and financial services 0.04 percent.

 
Foodstuffs in September 2014, experienced a 0.17 percent deflation, or a decline of index from 120.12 in August 2014 to 119.92 in September 2014.

Of 11 subgroups in foodstuffs group, 7 subgroups experienced inflation and 4 subgroups experienced deflation. Subgroups that experienced that highest inflation are subgroups of spices 0.95 percent, and the lowest is experienced by subgroup of meat and products thereof t 0.03 percent. Meanwhile, subgroup that experienced the highest deflation was vegetable subgroup at 1.70 percent, and the lowest was experienced by subgroup of fats and oils at 0.39 percent.

This group, in September 2014, contributed 0.02 percent to deflation. Dominant contributors to deflation include: red onions 0.06 percent; fresh fish 0.03 percent; beef, spinach, stink beans at 0.01 percent respectively. Meanwhile, commodities that are the major contributors to inflation include: red chili 0.09 percent; rice 0.02 percent; and purebred chicken meat 0.01 percent.

In September 2014, there was an inflation of 0.27 percent with Consumer Price Index (CPI) at 113.89. Of 82 cities of CPI, 64 cities experienced inflation and 18 cities experienced deflation. The highest inflation occurred in Pangkal Pinang at 1.29 percent with a CPI of 114.82, and lowest occurred in Gorontalo at 0.03 percent with a CPI of 109.62. while, deflation occurred in Tual at 0.89 percent with a CPI at 117.57, and the lowest occurred in Kudus and Manado at 0.03 percent, respectively with a CPI of 119.09 and 110.90, respectively. (E)

Business New - October 3, 2014

LINK AND MATCH STILLBELOW TARGET, FINANCIAL ENGINEERING STILL FAVOTITE LINE

The Association of Indonesia Tender saw imbalance in the application of link-and-match and supply-demand in human resources development for the labor market. Graduates of Vacational High School in Indonesia tend to choose subjects related to economy incluring Financial Engineering. Their interest in Physics and Engineering Technology was declining, the condition was different from that in China.

Many tertiary students in China studies physics and technology in well known universities in the USA. “In Indonesia, subjects related to financial engineering are more favored. The result is that national petro-chemical industry become less competitive. In our commonplace Industry line like textile, plastic industry etc petrochemical experts are needed,” Tito Loho, Executive Director of the Indonesia Tender Association disclosed to Business News [26/9].

Scarcity of skilled expert did not match with demand for experts in the industry. University graduates, especially of technology branch rush to seek for a job abroad. Oil drilling projects in Uni Arab Emirates employees skilled engineers from Indonesia. But it was also possible that Indonesian workers were only employed as blue collar workers. The professions were not relevant to tertiary knowledge”

Graduates in engineering technology, especially chemistry were determinant factor in national petrochemical industry. The related professions were not only petrochemicals but also oil drilling, textile etc. “We must think hard to step up capacity of petrochemicals. Today the industry was booming but not being supported by competent workers. Petro chemicals synthetic gas could also enhance national down streaming program,”

Meanwhile Business News managed to make a portrait of small business [UKM] and all of their problem afield. One of them was Nurul, a rattan crafter from Cirebon. She ‘inherited’ the occupation from her parents. He had been helping her father for 3 years which was willed to her father by her grand father. She was not promoted from a beginner to crafter. “If I am hardworking I can be promoted in a month” Nurul disclosed to Business News [26/9].

The profession of a rattan craftsman has its by professions like service or repair like connecting busted parts or replaceing damaged parts. Small rattan crafters and rattan products traders in Grogol, West Jakarta were different from big workshop. The rattan crafters in Grogol were only producers, they don’t render customized service or make taiklir made rattan products.” Even if there were orders we don’t produce the decorative parts.”

 
Apparently many rattan workshops managed to make innovative rattan products, such as goodie bag with Mickey Mouse design. Also their was baby box made sweeter with pastel button, rubber or cotton. Cartoon characters could be attractive to children. Sales strategy had also internet like on line shopping as medium.

Nurul admitted she never imagined that far. She could also could not comprehend the creative economy concept proclaimed by the next Government. “I am only a high school graduated, I could not afford to go to college.”

She admitted that the constantly strived to learn to become a crafter. She claimed that the process of making products from raw materials to become items of sales value depended on hard effort. Someone like Nurul had been advantaged by the environment the rattan craft industry. “the village of Pleret, Tegal Wangi was full of rattan furniture shops. Cirebon was once glorious as export center of rattan furniture shops. Cirebon was once glorious as export center of rattan goods for export to America and Japan.”

Most of the rattan craft products from Cirebon were hand made products. In the process of making furniture rattan be bended or straightened to match the design.

Nurul said that with strong will I power, in just one short month a beginner could command over the technique of making products. They made more than just rattan chairs or baskets, but also baby boxes, hula hoops, lamp caps, partitions etc. there are numerous products, but the best selling are baskets, and the least were lazy chairs and partitions.” (SS)

Business New - October 1, 2014

MARKETPLAYERS RESPONDED NEGATIVELY TO INDIRECT ELECTION SYSTEM

Rupiah exchange rate value against USD and IHSG at BEI this week until transfer of authority from ruling President SBY to the elected President JOKOWI would be under pressure.

The pressure on Rupiah and IHSG was neither due to increased benchmark rate by the Fed, nor by the oil price issue but rather on account of political unrest in regard to the issue of indirect election at the provincial level.

Plenary Meeting of Parliament on Friday [26/9] at 01.45 PM finally passed the Bill on Regional Election [Pilkada] in Law which stipulated that Election of Regional [Provincial] be executed through local Parliament.

Plenary Meeting of House with the agenda to decide Pilkada Law began on Thursday [25/9] at 15.30 PM until Friday [26/9] 01.45 PM. The Plenary meeting was suspended 3 times, i.e. on Thursday [25/9] 18.00 PM and 23.45 PM and on Friday [26/9] 00.30 AM.

The Plenary Meeting of House led by Vice Chairman of House Priyo Budi Santoso was marked by interruptions. Even fraction of the Demokrat Party decided to walk out as the option they proposed, i.e. Direct voting with 10 notations was not accommodated by the Forum,

Passing of thus Pilkada Law had to be done by voting as no agreement was arrived at for the two options. Were Direct Voting and Voting by Local Parliament. Indirect Pilkada Election won by the following count: total count 226 votes consisting of Golkar Party [77 votes], PKS [55 votes], PAN [44 votes], PPP [32 votes] and Gerindra Party [22 votes].

The option of Direct Election System won 135 votes in total, consisting of PDIP [88 votes], PKB [20 votes], Hanura [10 votes], Golkar Party [11 votes] and the Demokrat Party [6 votes]. For that matter, Government’s approval was declared by the Ministry of Internal Affairs Gamawan Fauzi.

Meanwhile news on economy would be outnumbered by political news. Bank Indonesia stated that every increase of Rp. 1,000 of subsidized oil price would jack up inflation of 1.1% - 1.2%. If the increase was Rp. 2,000 per litre it would jack up inflation of around 2.2% - 2.4%. If the increase was Rp. 3,000 the inflation would be around 3.3% - 3.4%.

As told, elected President Joko Widodo and Jusuf kalla planned to increase oil price when they were in office. Recorded inflation was also still within BI’s target which was set at 4.5% + 1% by end of 2014. However, the assumption was not inclusive of the oil price factor.

The only thing was that inflation of September 2014 was basically under control. BI was expecting that inflation of September would ne less than August. About Pertamina’s plan to increase price of 12 kg LPG gas in second week last September, BI hoped it would have no inflator effect.

The Central Board of Statistics [BPS] reported that inflation in August 2014 came to 0.47 percent, the lowest since 2005 and only less compared to August 2006 which was 0.33 percent. The Government, cq the Ministry of Finance Chatib Basri was expecting that OJK as financial regulator body responded instantly to deposit interest war waged by some sterling banks.

It was about time that bank regulators continued to drive industry toward sustainability, including actively responding to bank interest war which was responded by BI through mix monetary policy.

Bank’s liquidity which tend to tighten had forced some sterling banks to increase deposit interest for big depositors. Today BI rate was only 7.5%, but sterling banks could offer deposit interest up to 11%.

Hopefully the banking industry could apply the prudential principle in running intermediation; so the banking sector could anticipate external turbulences. The next few years would be hard time for the national banking sector especially in regard to the Fed’s maneuvers.

The Fed’s plan would threaten economy of the emerging nations whose fundamental economy was weak. So increase of FFR by the Fed had the potential to drive capital outflow from the emerging countries.

The shallow Indonesian moneymarket might trigger domestic economic vulnerability. In case of global turbulence. The banking sector as greatest contributor to national economic growth was expected to be extra cautious in running business. Janet Yellen’s remark about the possibility of the Fed running FFR sooner strengthened USD influence.

The Moneymarket

Last weekend [26/9] USD strengthened against world’s leading currencies. This indicated that America’s economy was on the way to recovery. At the forex market in Tokyo Euro was traded at USD 1.17, the weakest position since November 2012.

USD also strengthened against Yen. USD was traded at 109 Yen, up against the previous 108.73 yen. USD still had the chance to reach 110 Yen, which was due to short term net sell potential by investors. Strengthening of USD was supported by economic recovery in the USA. In the near future increasing bank interest in the USD would materialize.

Evidently during morning session last weekend [26/9] Rupiah value against USD weakened at Rp. 12,000. Strengthening of USD was driven by statement of the Fed’s executive about time frame for increasing interest.

Rupiah value was opened to weaken to Rp. 12,001 per USD. Rupiah was opened to inched down from Rp. 11,983 per USD against previous position. By noon’s session Rupiah was still struggling at the level of Rp. 11,900 – Rp. 12,030 per USD. meanwhile JISDOR rate also showed Rupiah was weakening to Rp. 12,007 per USD. Rupiah was corrected by 60 points against the previous position Rp. 11,947 per USD.

So far, nearly all US data was posted to worsen. Still persisted and was able to strengthen which was triggered by the Fed’s officials remark.

USD was traded at the position of Rp12,015 USD strongest position was Rp. 12,020. There were at least two factors that caused Rupiah weakening:

Firstly, the global factor, in regard to the Fed’s plan to increase US benchmark rate.

Secondly, there were speculations that the US Central Bank would increase benchmark rate in Q-4 2014, but looks like it was only trader’s speculation. Most probably US benchmark rate was no clarity about US monetary policy, global moneymarket would remain turbulent and USD would be in bullish trend.

Passing of the Pilkada Bill by Parliament would be a bad precedent for the future Government. It was feared that the governance of President Jokowi-Jk would not run smoothly because they would have to face opposition in the region. The reason was because the Governors elected by local parliaments would be candidates of he Red-White opposition group [KMP].

Investors also fared that Indonesia would constantly be shaken by political instability and legal uncertainty. Indirect election through local Parliament would be brought to court [MK] by the people. So the market would still see legal uncertainty.

Meanwhile elected President Jokowi underscored that Parliament’s decision to return electoral right to Parliament was a back step. Jokowi called out the people to watch political party robbed people’s political right to elect.

Jokowi since the beginning rejected Pilkada Indirect election through Parliament. The reason was because the election process was not transparent and the leadership quality of the election was questionable.

In that case Rupiah would be suppressed to around Rp. 11,975 – Rp. 12.075 per USD during closing session last week end [26/9]. If BI made intervention, most probably Rupiah would be in the range of Rp. 11.900 – Rp. 12,000 per USD. a development as such might still continue this week. Rupiah would be still under pressure in the range of Rp. 12,000 – Rp. 12,125 per USD due to negative political sentiment.

Rupiah value might be held back if the Government was successful in releasing new promissory notes. As known, the Government planned to release bonds in Rupiah denomination known as ORI this October to cover up budget deficit this year at targeted value of Rp. 20 trillion.

IPO would be run 1-20 October with listing at BEI on October 23. So far sales of bond was exercised to cover up swelling budget deficit which was predicted to be 2.4% of GDP this year. ORI tenure was 3 years with coupon set for September 29.

Unlike investors from banks and insurance companies, individual investors were permitted to buy packages smaller than bonds. An individual investors allowed to make an offering of at least Rp. 5 millions but were not allowed to make offering more than Rp. 3 billion, by Regulation of the Ministry of Finance. The Government had appointed a number of banks including Citibank, Bank OCBC NISP and Bank Mandiri as sales agents of ORI.

It was noteworthy that Rupiah value at Rp. 11,600 – Rp. 11,900 per USD as ideal level for good trading performance. At that level Rupiah was believed to be able to increase export and reduce import. Undervalued currency was not always bad, and strong currency value had its disvantages.

A country having deficit in current transaction and trade balance needed to put brakes on import. Recent weakening of Rupiah was more caused by the Fed’s plan to increase US benchmark rate in Q II or III 2015 which made investors all over the world to reposition their portofolio.

Countries having homework to do to restore their macro economic condition – including Indonesia, were having currency exchange rate problems while countries which had overcome the problem would undergo pressures of lesser degree. The only thing was that statement of BI official about Rupiah comfortable level was criticized by market analysts. BI official stated that Rupiah value at certain level would make exporters reluctant to sell their Rupiah. They were afraid that in case they needed USD they might find it hard to obtain them.

The Capital Market

During trading on afternoon session last weekend [26/9] index of IHSG was corrected deeply as selling spree by foreign investors heigthened. Premium share were subject to selling spree. To open trading in morning session IHSG dropped by 58.347 points –[1.50%] to the level of 5,123.142 was dragged down by negative sentiment from the global and regional market. Investors released high risk assets.

Passing of the Bill on Pilkada Indirect Election by Parliament brought negative impact. Blue chip shares were released by investors, pushing IHSG further down. During closing of session I [26/9] IHSG fell by 84.465 points [1.62%] to the level of 5,116.914. Meanwhile index of LQ 45 sank by 17.444 points [1.97%] to the level of 866.966 all sectoral index at the stock hall were undergoing cortection. The deepest correction was on the mining and financial sectors.

Meanwhile most of the shares in Asia weakened except one: the China stockmarket which inched up. Index of Nikkei 225 fell by 116.40 points [1.02%] to the level of 16.207.74. index of Hang Seng dropped by 109,16 points to the level of 23,658.97. index of Composite Shanghai inched up by 0.77 points [0.03%] to the level of 2,345.88 Index of Straits Times inched down by 2.82 points [0.09%] to the level of 3,288.17.

Foreign investors responded negatively to the Bill of Pilkada Indirect Election just passed by House. They made net sell of Rp800 billion at the regular market. The figure moved up constantly since opening session. In the past month foreign net sell totaled Rp2.1 trillion, the rest was a at the stock hall amounting to Rp51 trillion since early year based on BEI record.

Investors were dissapointed with Parliament’s decision to pass the Bill on Pilkada Indirect Election. President Jokowi would find difficulty to pass oin his agenda to the Provincial Government as the officials of the regions would be from the Red-and-white coalition.

Passing of the Pilkada Bill on Indirect Election was total victory for the KMP who supporter of Prabowo-Hatta candidate in last election. The KMP coalition group rated that indirect election would minimize corruption and regional budget. The result was that 242 governors and provincial leaders be appointed by the local Parliament which consisted mostly of KMP members.

Broadly speaking IHSG had been fluctuative sometimes index soared high but prediably sink deep again when positive and negative news faded away.

On a time like this marketplayers tend to look at fundamental economy instead of just the sentiments, particularly in case of blue chip shares. Sentiments, positive negative, must not overrule the underlying fundamental of shares. There were some shares worth observing, i.e. BBCA, TLKM, BBRI, PGAS, and GGRM which rose by 4.6% and KBLF shares.

Capitalized shares would be on the frontier line to serve as jack up for indices. Besides, the shares were sensitive to market development, Today investors were trying to find a way to justify market valuation which were relatively higher than historic average. It happened to small shares of high volatility.

Apperantly IHSG was predicted to move flat with tendency to weaken in the range of 5,075 – 5,125 last week end [26.9]. IHSG would still be under pressure over the week in the range of 5,000 – 5,100 if there was no positive sentiment to the local stockmarket. Investiers were reluctant to invest their capital too long at the local stockmarket as they were depressed by political dynamics and legal uncertainty. (SS)  

Business New - October 1, 2014