Indonesia core inflation to rise moderately to 1.3 pct in 2017, says ANZ Research

Headline inflation has and will continue to edge up on the back of increases in energy-related costs and administered prices. Nonetheless, demand-pull pressures and core inflation, by implication, should remain muted given the sluggishness in the labor market.

Headline inflation increased 0.7 percent y/y in February, compared to 0.6 percent in the preceding month. Private road transport costs increased by 7.1 percent y/y, faster than the 4.1 percent rise in January, largely due to a lower base of comparison in the preceding year.

Further, the Monetary Authority of Singapore’s (MAS) core inflation, which excludes accommodation and private road transport costs, eased from 1.5 percent in January to 1.2 percent y/y, owing to lower services and food inflation.

"We forecast core inflation to rise only moderately to 1.3 percent in 2017 from 0.9 percent in 2016, in the lower half of the Monetary Authority of Singapore’s (MAS) forecast corridor of 1-2 percent," ANZ Research commented in its latest research report.

Inflation is likely to moderately rise reflecting a combination of unfavorable base effects and upward adjustments in administered prices. These administrative price increases include increments in car park charges and household refuse collection fees, which took effect from December 2016 and January 2017, respectively.

Moreover, increases in water prices and service & conservancy charges for HDB public housing, as announced in the FY2017 budget will also lift administered prices. Meanwhile, core inflation pressures are, however, likely to be muted given the labor market and weak wage growth by implication.