Inflation Eases Further Into Band, Too Early To Talk BI Cuts

CPI inflation moderated further in July to 3.1% from 3.5%, in line with expectations and close to the mid-point of target. This is the lowest inflation rate since March 2022. Core CPI came in below expectations at 2.4% down from 2.6% in June, also the lowest since March last year and approaching the bottom of the target band. Bank Indonesia last hiked rates in January and inflation developments continue to signal that its tightening cycle is over. With July showing a broad based easing in price pressures, speculation regarding the initial rate cut is likely to increase, but IDR stabilisation and the end to Fed tightening are needed first.

• In terms of the more volatile components, state-administered inflation moderated to 8.4% y/y from 9.2% and volatile food to zero from +1.2%. There are upside risks to the latter from weather and Russia’s refusal to renew its grain deal with the Ukraine. There are also risks to headline inflation from higher oil prices, which rose 14% in July.
• This is the first July CPI data released in the region and may be signalling a further moderation in ASEAN inflation at the start of Q3.

Source: MNI - Market News/Refinitiv