Domestic Manufacturing Sector Pressured by Cost Inflation

Latest S&P Global data shows that Indonesia’s manufacturing activity entered a contraction phase in April 2026. The Purchasing Managers’ Index (PMI) fell from 50.1 in March to 49.1. Head of Economics at Trimegah Sekuritas Indonesia, Fakhrul Fulvian, assesses that this decline marks the first contraction in the last nine months and occurs amid strengthening inflationary pressures, both globally and domestically. According to him, this weakening is not isolated but part of a broader global phenomenon. “We see a very clear divergence between advanced economies and ASEAN countries,” Fakhrul stated in a written comment on Monday, 4 May 2026. Fakhrul views that the United States and Japan are instead experiencing manufacturing acceleration due to the safety stock building phenomenon. Meanwhile, ASEAN countries, including Indonesia, are starting to feel pressure from cost inflation and supply chain disruptions. He explains that the pressure on Indonesia’s manufacturing sector is triggered by a surge in input costs. This is due to geopolitical conflicts driving up raw material prices and supply limitations. This condition is reflected in production cost inflation surging to the highest level in the last four years and then passed on to selling prices at the fastest rate in more than a decade. Fakhrul describes this situation as an example of cost-push inflation, where rising costs force producers to reduce output or increase selling prices. According to him, both occurred simultaneously in April. On the other hand, he assesses that the increase in new orders does not yet reflect a healthy demand recovery. The rise in orders is considered more of a front-loading nature in anticipation of price increases, rather than due to genuinely strong demand. Fakhrul also highlights the PMI weakening occurring alongside Indonesia’s inflation of 2.42 per cent year-on-year in April 2026. Although still within the target range, the dynamics in the manufacturing sector are seen to indicate potential future price pressures starting to emerge from the input side. He assesses that pressure at the producer level has the potential to spill over to consumer inflation in the coming months, especially considering the weakening of the rupiah exchange rate. Fakhrul emphasises that this condition creates non-simple policy challenges because the real sector is weakening while price pressures are increasing. According to him, the situation demands more precise policy responses, particularly from the monetary side and exchange rate stabilisation. In the regional context, he assesses that Indonesia is not alone. The Philippines has also entered the contraction zone, while Vietnam and Thailand are experiencing significant slowdowns. Meanwhile, Malaysia is considered relatively better due to stockpile building activities.