Southeast Asia's Largest Economies Show Less Inflation Pressure

(Bloomberg) -- 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 percent in March, compared with the median estimate of 3.8 percent in a Bloomberg survey of 19 economists. In Thailand, the measure was 0.8 percent versus a projection of 1.3 percent.

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 declined 0.02 percent from the previous month, compared with the median estimate for a 0.2 percent increase
• Core inflation was 3.3 percent, compared with estimate of 3.4 percent

Thailand’s inflation details:

• Consumer prices declined 0.5 percent from the previous month, compared with the median estimate for little change
• Core inflation was 0.6 percent, matching the estimate
• Still, commerce ministry raised 2017 inflation forecast to as high as 2.2 percent from 2 percent based on assumptions of
  • 3 percent to 4 percent economic growth
  • Dubai crude oil prices at $50 to $60 per barrel
  • Baht at 35.5 to 37.5 per dollar

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

--With assistance from Herdaru Purnomo

To contact the reporters on this story: Karlis Salna in Jakarta at ksalna@bloomberg.net, Suttinee Yuvejwattana in Bangkok at suttinee1@bloomberg.net.

To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, Karl Lester M. Yap, Thomas Kutty Abraham