Economic Highlights:
Inflation Increases Slightly In September
Inflation Increases Slightly In September
¨ The headline inflation
increased to 3.1% y-o-y in September, up from +2.8%in August. The faster
increase in prices of raw food products and costs of housing & utilities
and a smaller deflation in transport & communication contributed to the
pick-up.
¨ Meanwhile, the core inflation
rate moderated to 3.2% y-o-y in September, from +3.3% in August and +3.5%
in June and July. This was in part due to not robust domestic demand,
manageable inflationary expectation, and relatively stable Indonesian Rupiah.
The administered prices, however, recorded a smaller deflation of 0.4% y-o-y,
from -0.9% in August due to smaller decline in fuel and electricity prices
during the month compared to last year. For volatile food (fresh food), the
prices increased to 6.5% y-o-y in September, in line with a pick-up in raw food
products due to bad weather conditions.
¨ As a whole, inflation has been on
downward trend after hitting a high in February and March, aided by low energy
prices. Indeed, the government cut fuel prices on August and for all diesel
& gasolines by an average of 1.8%. Starting 1 October, the gasoline prices
would be reduced further but the government decided to increase the diesel
prices. Despite the cut in fuel prices, we expect headline inflation to
gradually pick up ahead of holiday season in December and potential impact of La
Nina.
¨ For the full-year, we expect
inflation to stay low and will likely moderate to an average rate of3.4% in
2016, from +6.4% in 2015, on account of low crude oil prices and relatively
soft economic growth. This is lower than our previous projection of an average
rate of +4.0% due to softer-than-expected domestic demand in 3Q. For 2017, we
expect inflation to pick-up slightly to an average rate of 3.8%, on account of
planned electricity tariffs hike and modest pick-up in volatile food prices.
¨ As the inflation will likely
continue to be subdued, we expect Bank Indonesia to maintain its loose monetary
and macroprudential policy. For the rest of the year, we envisage BI to retain
its policy rate unchanged at the current level. Further out, we expect the
BI to slash its key policy rate by another 50 basis points in 2017 to
support economic growth.
Kindly click the following link for the full report: Inflation Picks Up Slightly In September
Best regards,
Rizki Fajar
Vice President
Economist
PT. RHB Securities
Indonesia
