Krystal Tan (Economist) and Sanjay Mathur (Chief Economist) at Australia and New Zealand Banking Group (ANZ) offer their afterthoughts on the Indonesian CPI report released earlier this Monday.
Key Quotes:
“Indonesia’s headline CPI rose further in May, to 3.32% y/y, the highest reading in 13 months.
The pick-up in headline inflation was led by food prices, which rose by 4.14% y/y in May, as compared to 2.29% in April. Transport and clothing inflation also picked up, while housing, clothing and healthcare inflation eased.
In sequential terms, headline CPI rose by 0.68% m/m in April, following a 0.44% increase in the prior month. Food prices (+2.02% m/m) led the way, followed by transport (+0.54%) and clothing (+0.45%). The m/m increase in housing and healthcare prices slowed, while education prices were broadly unchanged.
Core CPI, which excludes volatile food and government-controlled prices, rose too, but to a smaller extent (+0.27% m/m). In y/y terms, core inflation edged up to 3.12% in May.
The big picture is that inflation remains comfortably within the central bank’s 2.5-4.5% target band, and is not a hurdle to monetary policy easing. Indeed, BI today reiterated that inflation is seen “low and manageable” and that it will “calibrate policy to support economic growth”.
The US Fed’s recent signal that the door to rate cuts is open has increased the scope for BI to lower its policy rate. We see room for at least 50bps worth of rate cuts this year, with the first 25bps coming as soon as its meeting next week, provided that IDR stability is maintained.”
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