Indonesian inflation decelerates in January, likely to remain within BI’s inflation band in 2018

The headline inflation in Indonesia slowed in the month of January. The moderation was due to lower energy costs and a favorable statistical base. On a sequential basis, the headline inflation slowed to 0.62 percent from December’s 0.70 percent. The headline print was mainly driven by food prices that rose 2.34 percent sequentially, the sharpest since January 2016. Food prices have rebounded in the past two months because of a supply shortage of rice. Other components of the food basket also stayed strong.

In spite of the higher global crude oil prices, transport inflation dropped 1.5 percent year-on-year in January 2018. This was led by the government’s decision in December not to raise fuel and electricity prices in the first quarter of 2018. Administered price inflation dropped 5.8 percent year-on-year in December.

Meanwhile, the core rate eased to 2.69 percent year-on-year after rising 2.95 percent year-on-year December. Core pressures are likely to remain benign, based on the projection of modest rebound in growth in 2018.

“We expect that GDP growth only modestly improve to 5.3 percent in 2018 from an estimated 5.1 percent in 2017”, stated ANZ.

For the whole of 2018, inflation is expected to remain within Bank Indonesia’s inflation band of 2.5-4.5 percent. BI is expected to continue keeping the 7-day reverse repo rate at 4.25 percent this year to underpin the economic rebound.

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