Inflation at 1.4%
October 1st, 2020
⏰ 1 minute read
⏰ 1 minute read
A lot of room...
History
When I first came to Indonesia, the rule among analysts was that inflation was 10% a year. So if you were forecasting sales growth it would be 10% plus some volume increase... if you’d told analysts Inflation would be 1.4% during a crisis with rupiah weakness... they & I would never have believed it. But September 2020 inflation is 1.4%!
September
The CPI index announced today even fell in September compared to August, amazing! Normally in a crisis, the rupiah weakens & inflation goes up. This time the rupiah has steadied & inflation has declined. It’s a similar story around the world. Investors are panicked that money printing will lead to inflation & buying up gold. But it’s just not happening.
10 year bond
Concerns about inflation & currency weakness have had an impact on our market interest rates & specifically the government 10 year bond yield. Bond yields around the world have collapsed, but ours is still high at 7.1%. That’s almost the same level as it was 5 years ago when inflation was at 6.4% after the then (temporary) fuel price increase.
Rupiah
The rupiah has not fallen to 17,500 or 20,000 as some predicted it would in this crisis, but at 14,800 it is a bit higher than the 13,100 5 years ago. Normally it’s the currency which drags up the inflation & interest rates, but this has not happened this time & the currency is instead lagging behind & not leading.
Stocks
With inflation this low, as the panic subsides & investors start to return to riskier assets, there’s now a lot of room for our 10 year bond interest rate & the rupiah to strengthen. The panic might be to get out of inflation hedges like gold. A stronger currency & lower interest rates will be a huge boost to stocks.
When I first came to Indonesia, the rule among analysts was that inflation was 10% a year. So if you were forecasting sales growth it would be 10% plus some volume increase... if you’d told analysts Inflation would be 1.4% during a crisis with rupiah weakness... they & I would never have believed it. But September 2020 inflation is 1.4%!
September
The CPI index announced today even fell in September compared to August, amazing! Normally in a crisis, the rupiah weakens & inflation goes up. This time the rupiah has steadied & inflation has declined. It’s a similar story around the world. Investors are panicked that money printing will lead to inflation & buying up gold. But it’s just not happening.
10 year bond
Concerns about inflation & currency weakness have had an impact on our market interest rates & specifically the government 10 year bond yield. Bond yields around the world have collapsed, but ours is still high at 7.1%. That’s almost the same level as it was 5 years ago when inflation was at 6.4% after the then (temporary) fuel price increase.
Rupiah
The rupiah has not fallen to 17,500 or 20,000 as some predicted it would in this crisis, but at 14,800 it is a bit higher than the 13,100 5 years ago. Normally it’s the currency which drags up the inflation & interest rates, but this has not happened this time & the currency is instead lagging behind & not leading.
Stocks
With inflation this low, as the panic subsides & investors start to return to riskier assets, there’s now a lot of room for our 10 year bond interest rate & the rupiah to strengthen. The panic might be to get out of inflation hedges like gold. A stronger currency & lower interest rates will be a huge boost to stocks.
