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Underlying Inflation Moves Down Toward Target Mid-Point, BI On Hold

INDONESIA

Headline inflation rose to 5.5% in February from 5.3%, close to expectations. However, core inflation eased to 3.1% y/y in February from 3.3%, the lowest since August and close to the middle of Bank Indonesia’s (BI) 2%-4% target band. BI has said before that it is focused on underlying inflation to assess the extent of second round effects. It will be happy with the February result and it validates its stance of no further rate hikes. It is expected to pause again at the March 16 meeting.

  • The increase in headline inflation was driven by the volatile food component. Food, drinks and tobacco rose to 7.2% y/y from 5.8% in January. Transportation moderated slightly to 13.6% from 13.9% and utilities to 3.4% from 3.6%. State-administered prices, which include public transport, fuel & cigarettes, remained high at 12.2% y/y.
  • Indonesian core inflation is well below that of non-Japan Asia ex China as the latter continued to rise in January (see chart). Indonesia’s headline was also below in January. They are the first in the region to release CPI data and so Asia’s February inflation trends will evolve over March.
Indonesia core CPI vs non-Japan Asia ex China y/y%

Source: MNI - Market News/Refinitiv/Bloomberg

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