The issue of stagflation caused the rupiah to weaken slightly by 0.07% against the United States (US) dollar to Rp 14,250/US$ last Wednesday. Pressure on the rupiah intensified on Thursday, due to the higher risk of stagflation.
Although the risk of stagflation in Indonesia is still small, given that inflation in Indonesia is still low, if this happens in China, the impact will be felt domestically. Moreover, Indonesia also imports a lot from China.
Anxiety over stagflation intensified after the US last night reported October's CPI surged 6.2% YoY, the biggest increase since December 1990. While core CPI inflation grew 4.6%, higher than expectations of 4% and the highest since August 1991.
The high inflation in the US made the yield on US bonds (Treasury) soar 13 basis points, triggering the US dollar index skyrocketing up to 1% to 94.868 which is the highest level since July last year. The increase in these two assets is bad news for the rupiah today.
Technically, there has been no change in the levels that must be considered even though the rupiah weakened yesterday. The rupiah symbolized by USD/IDR is still stuck with the 50-day moving average (50/MA 50 moving average) in the range of Rp. 14,220/US$ to Rp. 14,200/US$.
The Effect of Increased Inflation on the Rupiah
Opportunities for strengthening the rupiah are still supported by the Shooting Star pattern formed on Friday. In this case, the USA dollar weakened, and therefore the Indonesian monetary unit strong.
Meanwhile, the nighest resistance is within the vary of Rp. 14,270/US$, if penetrated, the Indonesian monetary unit risks weakening to Rp. 14,300/US$. The next resistance is in the range of Rp. 14,320/US$ to Rp. 14,330/US$ which is in the range of MA 100 and 200.
The threat of high inflation is now more evident after China and the United States (US) yesterday released consumer price index (CPI) data. In response to this inflation, the rupiah slumped against the US dollar in early trading on Thursday, almost breaking through Rp 14,300/US$.
According to Refinitiv data, the rupiah opened trading by weakening 0.25% to Rp. 14,285/US$. After that, the weakening of the rupiah increased by 0.32% to Rp 14,295/US$ at 9:13 WIB.
The high inflation in the US made the yield on US bonds (Treasury) tenor soar 13 basis points. The increase in yields is a response from market participants who anticipate the possibility of the US central bank (The Fed) raising interest rates more quickly to reduce inflation.
US Treasury Secretary, Janet Yellen, said high inflation in the US will not continue, and the Fed will act if inflation continues to be high, so it doesn't happen like in the 1970s.
Concerns That Arise Due to Inflation Against the Rupiah
This means that when inflation continues to rise, the Fed is likely to raise interest rates next year. As a result, the US dollar index skyrocketed by 1% to 94.868 yesterday, the highest level since July last year. Rupiah also slumped in early trading today.
Before the United States, China first expressed anxiety about the occurrence of stagflation. Stagflation is that the stagnation of economic process amid high inflation.
The Chinese government yesterday reported CPI inflation rose 1.5% YoY in October, higher than the previous month's 0.7% YoY and compared to the Reuters poll of economists predicting 1.4% YoY.
The most worrying thing is inflation from the producer sector (producer price index/PPI) which skyrocketed by 13.5% YoY, higher than 10.7% in the previous month. The PPI in October was the highest in more than 26 years.
When inflation in producers is high, there's a risk that CPI inflation will spike within the next few months. This is because producers are likely to increase the selling price of their products.
