Indonesia: Inflation lost momentum in February

Economist at UOB Group Enrico Tanuwidjaja and Haris Handy review the latest inflation figures in Indonesia.

Key Quotes

“Indonesia’s annual inflation rate slowed for a second straight month in February to +1.38% y/y vs. +1.55% in the previous month. This also marked the slowest annual inflation since August 2020 and remained below the central bank’s target range of 2.0% - 4.0%. Nonetheless, the general price level remains steady in February with the core inflation at +1.52% y/y vs. January’s +1.56%. The government-administered prices rose by +0.66% y/y in February (vs. January’s 0.34%); while volatile prices component slowed to +1.52% y/y vs. 2.82% previously.”

“Out of 11 inflation items by expenditure, the disinflation in February’s consumer prices was due to slower food inflation of +1.92% y/y vs +2.81% in the previous month; which more than offset the higher prices seen in household equipment and transportation… Meanwhile, clothing and personal care prices slowed, and other inflation categories remained steady in February. Out of 90 cities, 34 cities experienced monthly deflation, which occurred mostly on eastern Indonesia.”

“Going forward, we expect the headline inflation to gradually recover and exceed the lower-end of the government's 2021 inflation target (2.0% - 4.0%). This may be achieved on the back of a demand-led recovery (especially later on 2H21 given the optimism from the vaccine), accommodative monetary policy, and the continuation of fiscal stimulus disbursement. Nevertheless, downside risks remain due to uncertainty surrounding the pandemic going forward, which, in return, might negatively impact consumers’ confidence.”

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