Indonesian headline inflation eases slightly in April, BI likely to cut interest rate by 25 bps in May

Indonesia’s April headline inflation slowed down for the second straight month while being comfortable within the central bank’s target band of 2 percent – 4percent. The easing is because of further easing in food prices and a slowdown in transport costs.

On a year-on-year basis, the headline inflation slowed to 2.67 percent from March’s 2.96 percent. Sequentially, the consumer price index rose 0.08 percent in April from March’s 0.1 percent. Food prices slowed down further to 0.09 percent from 0.1 percent. Clothing and footwear followed. Transport costs continued to fall further. Together, these counter the rise in healthcare related cost and personal care and other services.

Core inflation, which excludes volatile food and government-controlled prices, slowed to 2.85 percent year-on-year. Administered prices fell in the month, albeit less severely than in March.

“With this, inflation eased for the second consecutive month, sitting comfortably within Bank Indonesia’s target band of 2-4 percent. This will help the central bank to focus on reviving growth, especially following the downward revision to its growth forecasts (to 2.3 percent for 2020) in the April meeting. With inflation increasingly becoming a background issue for monetary policy, we believe a 25bp reduction in the policy rate later this month is in the cards”, said ANZ in a research report.