Indonesian inflation likely to inch higher in 2017 on strengthening global oil prices

Consumer price inflation in Indonesia is expected to inch higher next year, unless there is a pause in the strengthening of global crude oil prices.

Inflation in Indonesia is expected to rise 3.4 percent y/y and 3.2 percent respectively in Indonesia. Further, CPI inflation may average around 4.5 percent in 2017, as compared to projected 3.5% this year, DBS reported.

While 4.5 percent is in the upper half of Bank Indonesia’s (BI) 3-5 percent target range, the central bank is unlikely to be too bothered by it for now. There are some risks, however, from the rupiah trajectory going forward, noting the recent sharp moves in the markets.

Import content of production remains high at an average of 70 percent across industries, and any significant weakening pressure on the rupiah only means more upward pressure on domestic inflation.

"Unless there is another dip in global oil prices, we reckon that inflation is set to continue inching up in 2017," DBS commented in its latest research report.