Indonesian headline inflation eased surprisingly in January, owing to below expected rise in food prices. On a year-on-year basis, the consumer price inflation came in below expectations at 2.82 percent. Sequentially, prices were up 0.32 percent, slower than the December’s pace of 0.62 percent.
The downside surprise was mainly due to slower rise of food prices, which rose 0.92 percent sequentially and 1.98 percent year-on-year. While transport prices dropped a bit sequentially after a downward adjustment in non-subsidised fuel prices, a low base meant that the year-on-year figure ticked up.
Core inflation remained widely stable in January, rising 3.06 percent year-on-year. On a sequential basis, it was up 0.30 percent, slightly accelerating from 0.17 percent recorded in December, underpinned by higher readings throughout most categories.
With the headline inflation likely to stay comfortably in the central bank’s target band of 2.5 percent to 4.5 percent and core inflation contained, inflation dynamics do not warrant monetary policy tightening.
“Instead, BI’s focus will remain on the rupiah, and the recent strength in the currency and a more dovish US Fed suggest that the risks to our base case for BI to hike its policy rate by 25bps in 2019 are to the downside. A sustained period of rupiah stability, low oil prices, and an improvement in the current account will warrant a re-assessment of our forecast”, said ANZ in a research report.
