Indonesia manufacturing activity improves as input price inflation hits 18-month high

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Indonesia’s manufacturers enjoyed a second month of growth in new orders and export business, according to an April survey, helping to offset pressure from the rupiah’s weaker exchange rate against the dollar, which pushed input costs up at the fastest pace in a year and a half.

The Nikkei-Markit purchasing managers’ index for Indonesia’s manufacturing sector climbed to a ten-month high of 51.2 in April, up 0.7 points from March and pushing further above the 50-point line delineating expansion from contraction.

Export orders rose in April to end a six-month run of contraction, as total new orders and output both grew for a second month. Output growth, while moderate, came in at the quickest clip in eleven months.

Polyanna De Lima, economist at Markit, noted:

The upswing in output was, however, insufficient to generate jobs, while there remained evidence of spare capacity. But, with output growth gathering speed, firms will look to hire more workers in the near-term should the rise in demand be sustained.

But companies surveyed also reported the fastest pace of inflation in a year and a half, with partial blame falling on a weaker rupiah exchange rate against the dollar for rises in the cost of oil, metals, plastics, chemicals and textiles. Higher input costs pushed output prices up at the fastest rate since December 2012.

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