Wednesday, June 2, 2021 3:57 AM EDT
10 months below target
Inflation picked up slightly to 1.7% YoY in Indonesia with core inflation also accelerating. May featured a holiday and commodity prices rose. Inflation quickened across nine of the eleven categories in the CPI basket, with core inflation settling at 1.4%. Despite the slight pickup in both core and headline inflation, prices pressures remain relatively subdued with inflation settling below target for a 10th straight month due to overall depressed domestic demand.
Source: t-bet
We do expect this trend to reverse in the near term, with base effects washing out and as commodity prices head north due to improving global economic conditions. Inflation will likely settle within the target band of 2-4% starting July although any upside price pressures will be capped by tepid domestic demand with the entire country placed under partial lockdown conditions (PPKM) for at least the first half of June.
Inflation remains below target for a 10th straight month
Badan Pusat Statistik
See you in 2022
Despite expectations for a pickup in prices, Bank Indonesia (BI) Governor Warjiyo remains confident that inflation will settle within target in 2021. With inflation expected to remain within target in the second half of 2021, we forecast a pause from the central bank for the balance of the year. However, Governor Warjiyo’s comments at the most recent policy meeting suggest that he is carefully monitoring price pressures although he also clarified that inflation pressures would only likely be of concern sometime in 2022. With price pressure expected to remain benign in 2021, any adjustments to the policy stance will likely be delayed to 2022 with a rate hike in 2021 only possible should IDR come under considerable pressure.
Disclaimer: This publication has been prepared by the Economic and Financial Analysis Division of ING Bank N.V. (“ING”) solely for information purposes without regard to any ...
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