Economic update:
Inflation On An Upward Trend But Is Still Manageable
Inflation On An Upward Trend But Is Still Manageable
Indonesia’s consumer price index (CPI)
increased to 3.5% in Jan 2017, and has
been on an upward trend in recent months. We expect the trend of inflation to
continue rising through the whole of this year, mainly led by higher fuel and
food prices as well as administered priceinflation. We expect the CPI to
rise +4.2% in 2017 (vs +3.5% in 2016), boosted by:
i. Higher fuel prices;
ii. Electricity tariff hike;
iii. A modest pick-up in volatile food prices.
¨ Key
policy rate to be cut by 25bps, albeit with limited room. As
inflation may likely continue to be manageable, we expect Bank Indonesia (BI)
to maintain its loose monetary and macroprudential policies. Although room for
further monetary easing is becoming increasingly limited, we still expect BI to
slash its key policy rate by 25bps in 2017 to 4.5%. This is in order to support
economic growth under stable IDR circumstances.
¨ Food
prices, in our view, are set to record a modest pick-up in 2017, on account of
a projected increase in distribution costs and slightly higher commodity
prices.
¨ The
decline intransport, communications & financial services costs narrowed toward
the later part of 2016,before recording an increase in Jan 2017 due to an
upward adjustment in domestic fuel prices. With crude oil prices staying firm
at current levels, the cost of this category of goods & services is
expected to register a faster increase throughout the year.
¨ The cost of housing
& utilities is on an upward trend of late.
In particular, the upward electricity tariff adjustment started to put pressure
on inflation in Jan 2017.
¨ We envisage prices of education, recreational &
culture, healthcare and clothing to elevate in 2017 due to higher energy
prices, rising labour costs and a moderate demand-pull effect.
Kindly click the following link for the full report: Inflation On An Upward Trend But Is Still Manageable
Rizki Fajar
Vice President
Economist
PT. RHB Securities
Indonesia
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