Producer inflation continued to pick up, completing the figures to May’s high CPI consumer inflation (1.0% MoM; 8.6% YoY). Data show PPI US Final Demand in May
posted inflation of 0.8% MoM (Vs. Apr. 0.4% MoM) and 10.8% YoY (Vs. Apr. 10.9% YoY), as prices for some fuels in the production process increased. The combination of a high PPI and CPI could force the Fed to hike FFR by +75 bps (Vs. Cons. +50 bps) in June. Wall Street closed mixed with yields on the short tenor UST2Y, which is more sensitive to rising FFR, touching the level of 3.45% or the highest yield since 2007.
May’s trade balance narrowed, projected to only book a surplus of USD 3.5 billion (Vs. Apr. USD 7.6 billion), in line with the CPO export ban during that period. This is
reflected in the forex reserves of USD 135.6 billion in May, a decline for the third month in a row. The decline in forex reserves limits BI’s room for movement, amid the depreciation of rupiah which had touched the level of IDR 14,700. Depreciation of the rupiah makes imported goods more expensive, resulting in an increase in the price of consumer goods, which in turn increases pressure on domestic inflation. NHKSI Research projects that the JCI will move upward today, within a range of 6,950-7,150.
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