Economists see inflation spike in Indonesia for rest of 2022

• Aug 11, 2022

A global spell of high inflation, aggressive monetary tightening and the risk of a recession are prompting economists to revise Indonesia’s economic forecasts for the remainder of the year.  

Analysts raised inflation projections for the third- and fourth quarters by almost a full percentage point to 5 per cent and 5.15 per cent, respectively, median forecasts from Bloomberg’s latest monthly survey showed. They bumped economic growth estimate for the period a tad higher while keeping the full-year growth outlook unchanged at 5.2 per cent.

“Expected interest rate hikes by the central bank may dampen the speed of growth trajectory in the near future,” said Enrico Tanuwidjaja, an economist at United Overseas Bank.

Full-year 2022 inflation outlook was raised to 4 per cent from 3.5 per cent, and for next year to 3.71 per cent from 3.35 per cent, the same poll shows.

“Risks of higher inflation has started to rise once again,” said Jeff Ng, senior currency analyst at MUFG Bank, who expects Bank Indonesia to deliver 150 basis points of hikes this year and next to check price gains. “Rising raw food prices has the potential to cause higher inflation in food away from home, such as restaurants, and other components of core inflation.”

Economists kept their expectation of 50 basis-point central bank rate hikes in the third quarter, and another 25 basis-point hike in the last quarter of this year, which will take the key rate to 4.25 per cent by end of this year. More hikes were seen next year, lifting borrowing costs to 5 per cent by first half of 2023 versus 4.75 per cent seen previously. BLOOMBERG