English
Indonesia’s inflation still benign, overall price pressures contained in the near-term
INDONESIA’S headline inflation inched up to a 5-month high in October on the back of rising transportation costs while core inflation remained stable, coming in at a similar pace as the last 2 months.
Headline inflation was up 1.7 per cent from a year ago, and up 0.1 per cent on a month-on-month basis. This is still below Bank Indonesia’s 2-4 per cent target.
Meanwhile, core inflation rose by 1.3 per cent from a year ago and 0.1 per cent from the previous month.
In a report issued on Nov 1, Maybank economists Lee Ju Ye and Chua Hak Bin maintained their average headline inflation forecast at 1.6 per cent in 2021 and 3.2 per cent in 2022.
“Inflation has been tame in Indonesia compared to the rest of Asean in 2021, as fuel subsidies capped the increase in energy prices while muted domestic demand capped core inflation,” they said.
“We expect inflation to rise in 2022 on the back of the VAT (value-added tax) hike (to 11 per cent from 10 per cent starting Apr 2022), higher global commodity prices and a domestic demand recovery.”
ANZ economist Krystal Tan noted that while there will be upward pressure from improving economic activity, higher raw material costs and supply bottlenecks, the still significant amount of slack in the economy and fuel subsidies will help contain overall price pressures in the near term.
Notably, consumer expectations for employment and incomes remain well below pre-pandemic levels. A limited pass-through from higher oil prices thanks to measures such as fuel subsidies will also help cap inflation, she noted.
“We remain of the view that Bank Indonesia has scope to keep policy accommodative for a prolonged period, and we expect the rate-hiking cycle to start only in late 2022,” she said.
Separately, Maybank’s economists said they expect Q3 gross domestic product (GDP) growth, which will be released on Nov 5, to moderate to 4.5 per cent (from 7.1 per cent in Q2) as private consumption and investment were weighed down by the severe Delta outbreak and tightened restrictions.
“We maintain our GDP growth forecast at 4.2 per cent in 2021 and 5.4 per cent in 2022.”
Source: https://www.businesstimes.com.sg/asean-business/indonesias-inflation-still-benign-overall-price-pressures-contained-in-the-near-term