Indonesia September consumer prices likely to ease, core-inflation likely to remain range-bound

Consumer prices in Indonesia are expected to have eased during the month of September as food costs likely continued to soften, particularly perishables and pulses, while sugar and spices act as a counterbalance.

Domestic markets return today to key inflation numbers, with CPI out on Thursday and WPI on Friday. CPI inflation is expected to ease 4.6 percent y/y in September from 5.05 percent in Aug. This compares to consensus at 4.8 percent.

Service sector inflation is likely to have flatlined around the 4 percent handle, little changed from Jan-Aug trends. Fading base effects and upwards adjustments in retail fuel prices, meanwhile, is likely to underpin the fuel price index. Core inflation is likely to remain range-bound within 4.5-5 percent, while WPI inflation is likely to tick up to 3.9 percent y/y in Sep from 3.7 percent month ago, on fading base effects, DBS reported.

Inflows from the IDS scheme (Income Declaration Scheme) have likely been supportive of domestic liquidity in the near-term, with our trading desk estimates suggesting that systemic liquidity is in surplus this week. Upcoming FCNR maturities and its impact on liquidity conditions will also be watched with interest.

Meanwhile stealth easing through higher liquidity provisions are set to continue, to help markets deal with upcoming FCNR maturities and ensure policy transmission remains on track. Open market operations worth INR 1.1trn have been undertaken yet far and this could rise to 1.6-1.8trn by end-Mar17.