Economic update:
Inflation Continues to Pick Up in February
Inflation Continues to Pick Up in February
Headline
inflation rate increased to 3.8% YoY in February, from +3.5% in January. This
was attributed to faster increases in the prices of raw food and costs of
housing & utilities as well as transport & communication. Going
forward, we forecast headline inflation to pick up to 4.2%, from +3.5% last
year. This is on account of:
1.
Higher crude oil prices as a result of production cuts;
2.
Electricity tariff hikes;
3.
Modest pick-up in volatile food prices.
¨
Key
policy rate to be cut by 25bps. As inflation would likely continue to be
manageable, we expect Bank Indonesia (BI) to maintain its loose monetary and
macro-prudential policies. Although the room for further monetary easing is
getting 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. However, we believe the window for a rate cut may
probably be opened until April.
¨
Housing
& utility price inflation was the biggest contributor to higher inflation
in January . This
was led by higher electricity tariff which contributed almost half of the
monthly inflation.
¨
Transport
& communication costs heightened. Rising cellular data tariffs and fuel price
adjustments contributed to heightened transport & communication costs.
¨
Core
Consumer Price Index (CPI) grew 3.4% YoY in Jan 2017 but stable during the
month due to relatively stable IDR and inflationary expectation after holiday
season.
Kindly click the following link for the full report: Inflation Continues to Pick Up in February
Best regards,
Rizki Fajar
Vice President
Economist
PT. RHB Securities
Indonesia
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