Indonesian headline inflation accelerates in July, BI likely to hike policy rate by 25 bps in August

Indonesian headline inflation came in line with consensus expectations in July. The consumer price inflation accelerated a bit to 3.18 percent on a year-on-year basis from June’s 3.12 percent. Despite the slight rise on a year-on-year basis, price pressures eased on a sequential basis in July. Sequentially, price gains eased to 0.28 percent from June’s 0.59 percent. This sequential decline was mainly because of 0.68 percent sequential fall in administered prices in July. On the contrary, food prices rose 0.85 percent sequentially.

Core rate accelerated to 2.87 percent on a year-on-year basis in the month from 2.72 percent. Sequentially, core CPI rose 0.40 percent, the highest rise in more than 18 months. The rise in core rate was quite widespread. All other key components recorded price rises except clothing. Still, core rate continues to be manageable, noted ANZ in a research report.

In all, headline inflation has persisted in the lower half of BI’s target inflation range of 2.5 to 4.5 percent each month this year. The inflation trajectory re-emphasizes the fact that the central bank’s decision to hike the policy rate by a cumulative 100 basis points year-to-date was aimed at stemming IDR softness, stated ANZ.

“Managing FX volatility will continue to remain the main focus of monetary policy in the coming months. Accordingly, we continue to expect the BI to hike policy rate by another 25bps at their upcoming meeting this month”, added ANZ.