Manufacturing: Demand Finds Its Footing
Indonesia’s manufacturing sector staged a notable recovery in September 2026, with the PMI rising to 52.4 from 49.8 in August, marking the strongest improvement in business conditions since February and signaling a return to expansion. The rebound was driven by stronger domestic demand and new project launches, with new orders growing at the fastest pace since February and export orders expanding for a second consecutive month at their strongest pace since May 2022. Improved demand translated into higher production and hiring, while backlogs increased at the fastest rate in five years, suggesting that capacity utilization is beginning to tighten. Overall, the latest survey points to a meaningful improvement in manufacturing momentum, supported by firmer demand, recovering exports, and easing cost pressures, although optimism moderated slightly amid

Trade Balance: Export Momentum Strengthens External Position
Indonesia’s trade balance widened significantly to a USD3.55bn surplus in August 2026, well above market expectations of USD0.7bn and marking a sharp improvement from July’s USD120mn surplus. The stronger outturn was supported by continued growth in exports, which rose 6.72% YoY to USD26.61bn, driven by higher shipments of nickel, iron and steel, aluminum, and other manufactured products, with the processing sector accounting for nearly 87% of non-oil exports. While a USD2.54bn oil and gas deficit continued to weigh on the external balance, the impact was more than offset by a widening non-oil surplus of USD6.09bn. Meanwhile, imports remained relatively robust at 19.09% YoY, reflecting resilient domestic demand and continued investment activity through higher imports of raw materials and capital goods. In our view, the stronger surplus points to an improvement in Indonesia’s external resilience and provides additional support for the rupiah, although the sustainability of this trend will continue to depend on commodity exports and the trajectory of global energy prices given the country’s persistent reliance on imported fuel and energy.

Inflation: Food Prices Keep Inflation Elevated
Indonesia’s inflation accelerated further in September 2026, with headline inflation rising to 0.30% MoM and 3.28% YoY, slightly below consensus expectations but higher than August’s 3.19% YoY. The increase was primarily driven by food-related price pressures, particularly higher prices of bird’s eye chili, red chili, chicken meat, rice, and eggs, while transportation costs continued to contribute to inflation through higher fuel and airfare-related expenses. Core inflation remained relatively contained, supported mainly by education costs, while administered prices stayed broadly stable. At the same time, inflation dynamics increasingly point to persistent pressures from staple food commodities, with rice prices continuing to rise across wholesale, retail, and milling levels, alongside renewed increases in key agricultural products. While inflation remains within Bank Indonesia’s 2.5%±1% target range, the combination of rising food prices, El Niñorelated supply risks, and elevated commodity prices suggests that inflation could remain near the upper bound of the target range, supporting a continued cautious policy stance.

Supportive at Home Challenging Abroad
Indonesia’s latest data point to a more encouraging macro backdrop, supported by a rebound in manufacturing activity, stronger export performance, and continued momentum in credit expansion. At the same time, inflation has continued to edge higher, largely reflecting foodrelated pressures, although overall price growth remains within Bank Indonesia’s target range. Recent developments suggest that domestic demand is holding up well and policy support is gaining traction, even as external conditions remain challenging amid elevated commodity prices, geopolitical tensions, and rising global bond yields. Looking ahead, we remain comfortable maintaining a wait-and-see stance on the policy outlook, while still leaving room for one final 25 bps hike toward 6.00% in 2026 should pressures from oil prices, global yields, capital flows, or the rupiah intensify once again. The policy preferences of the new Bank Indonesia leadership will therefore be crucial in determining how the balance between growth support and external stability evolves in the coming quarters.

JPFA - A Waiting Game

JPFA - A Waiting Game

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JPFA - A Waiting Game

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