Indonesian headline inflation accelerates slightly in August, BI unlikely to hike in September

Indonesian headline inflation data came in slightly above expectations in August. The consumer price inflation accelerated a bit to 3.20 percent in August from July’s 3.18 percent. The month also saw the first drop on a sequential basis in a year, in spite of the sustained pressure on the IDR.

The sequential fall was driven by a fall of 1.10 percent in food prices and marginal falls in clothing, transport, and administered prices.

Core inflation continued to be stable at 2.90 percent year-on-year in August, rising marginally from 2.87 percent year-on-year in July. Sequentially, core CPI rose slightly by 0.30 percent in August after the 0.41 percent rise in July. While core inflation continues to be manageable, the risks are evidently on the upside, given softness in the IDR, noted ANZ in a research report.

Headline inflation has continued to be in the lower half of BI’s inflation target range of 2.5 to 4.5 percent in 2018, and as such is not a pressing concern. Stability of rupiah continues to be the key focus for the central bank and is the main consideration for monetary policy.

“We do not expect BI to hike at the September meeting, but given continued pressure on the IDR, we cannot rule out further action to stabilise the currency. But this will come at the expense of growth, which BI has implicitly acknowledged when they revised lower their 2018 GDP forecast range to 5-5.4 percent from 5.1-5.5 percent in August”, added ANZ.