RHB Indonesia - Inflation Moderates in December - 4 January 2017 - (Inflation)

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Inflation Moderates in December

The headline inflation decreased to 3.0% YoY in December, down from +3.6% in November, contributed by slower increases in prices of raw food products, housing & utilities and clothing. Going forward, we expect headline inflation to pick up slightly to 3.8% in 2016, from +3.5% in 2016, on:

1. Planned electricity tariff hike;

2. Modest pick-up in volatile food prices.

♦ Key policy rate to be cut by 25bps. As the inflation will likely continue to be manageable, we expect Bank Indonesia to maintain its loose monetary and macroprudential policy. Hence, we expect Bank Indonesia (BI) to slash its key policy rate by 25bps in 2017 (to 4.5%) to support economic growth under stable IDR circumstances.

♦ Fresh food price inflation was responsible for most of the moderation. This was led by manageable supply distribution on the staple food in the year-end holiday and government’s intervention on traditional food market.

♦ Costs of transport heightened. Higher transport tariffs in holiday season and fuel prices adjustment contributed to the upside.

♦ Core CPI grew 3.1% YoY in December. Core inflation held stable due to steady domestic demand and stable inflationary expectation. (Rizki Fajar)

Link to daily report: Indonesia Morning Cuppa - 040117

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