Indonesia's manufacturing sector stabilized in May as stronger domestic demand offset persistent supply disruptions and rising input costs, according to data released Tuesday by S&P Global.
The S&P Global Indonesia Manufacturing Purchasing Managers' Index rose to 50.0 in May from 49.1 in April.
New orders increased for a second consecutive month and at the fastest pace since February, supported largely by stronger domestic demand.
Some manufacturers said customers accelerated purchases to build inventories amid rising prices and supply concerns, S&P Global said.
Despite improved demand, production fell for the third consecutive month as higher raw material prices and limited availability of inputs weighed on output.
"Indonesia's manufacturing economy remained under pressure during May, as production was held back by rising raw material prices and limited input availability," Usamah Bhatti, economist at S&P Global Market Intelligence, said.
"While firms noted a stronger rise in sales, this often reflected efforts by clients to build stock amid price and supply disruption," he added.
Average supplier delivery times lengthened for an eighth straight month as shipping disruptions and shortages linked to the Middle East conflict continued to affect supply chains.
Input cost inflation accelerated to its second-highest level on record, prompting manufacturers to raise selling prices at the fastest pace since October 2013.
"Cost inflation accelerated sharply midway through the second quarter and was the sharpest since the series record set in September 2013," Bhatti said.
"This pushed firms to raise selling prices at the fastest pace for just over 12-and-a-half years."
Supply shortages and elevated costs also weighed on purchasing activity, inventories, and employment. Manufacturers reduced purchasing activity and drew down raw material stocks, while staffing levels fell for a third consecutive month.
Manufacturers remained optimistic that output would increase over the coming year, although business confidence remained below the long-run survey average amid uncertainty over raw material prices and supply conditions.
The survey's elevated cost readings come as Indonesia's inflation outlook becomes more challenging.
Economists surveyed by Reuters expect annual inflation to accelerate to 2.97% in May, driven by higher prices for non-subsidized fuel, air travel, and cooking oil.
Bank Indonesia raised its benchmark interest rate by an outsized 50 basis points in May, stepping up efforts to stabilize the rupiah and keep inflation within its target range.
The rupiah has also come under sustained pressure, repeatedly touching record lows against the dollar as concerns over the economic fallout from the Iran war added to investor worries about fiscal policy, central bank independence, and capital market transparency.
Meanwhile, the government has expanded fuel subsidies following the conflict in Iran, helping cushion households from the impact of higher global energy prices.
