Eid mon

ECONOMIC UPDATE - Inflation moderates further in April



The monthly inflation rate heated up during Ramadan and Eid al-Fitr

Statistics Indonesia (BPS) reported the monthly inflation rate jumped by 0.33% MoM in April, higher than the March rate of 0.18% MoM, and mainly driven by Ramadan and Eid al-Fitr. However, this figure was below our estimate and consensus of 0.35% MoM and 0.41% MoM, respectively. Besides, inflation during Ramadan and Eid al-Fitr this year is relatively lower compared to the previous year's of 0.40% MoM, thanks to the harvest season in February and March, which helped to maintain the inflation rate. On a yearly basis, the consumer price index (CPI) inflation rate slightly decelerated from 4.97% YoY in March to 4.33% YoY in April, lower than our estimate of 4.34% YoY and the consensus of 4.36% YoY. Moreover, the core inflation rate was up to 0.25% MoM in April compared with the previous month of 0.16% MoM, exceeding our estimates of 0.24% MoM. Meanwhile, the highest contributor to April’s inflation rate was the transportation basket (+0.84% MoM) contributing 0.11% MoM to the inflation rate.


Inflation rate by expenditure groups

On a yearly basis, most of the expenditure groups went up in April, namely: food, beverages, and tobacco group of 4.58% YoY; clothing and footwear group of 1.80% YoY; housing, water, electricity, and household fuel group of 2.53% YoY; furnishings, household equipment, and routine household maintenance group of 3.27% YoY; health group of 2.60% YoY; transportation group of 11.96% YoY; recreation, sport, and culture group of 2.38% YoY; education group of 2.75% YoY; food and beverage serving services/restaurant group of 3.79% YoY; and personal care and other services group of 4.67% YoY. On the other hand, the information, communication, and financial services group reported a deflation of -0.25% YoY. 


Information and communication equipment supports deflation

The information, communication, and financial services group recorded a deflation of -0.25% YoY in April. It was reflected by the index that decreased from 99.83 in April 2022 to 99.58 in April 2023. Besides, this group contributed 0.01% to the April deflation. This group has three subgroups, namely: information and communication equipment; information and communication services; and financial services. The information and communication equipment subgroup reported a deflation of -1.35% YoY. On the other hand, the information and communication services subgroup recorded an inflation rate of 0.05% YoY. Meanwhile, the financial services subgroup remained unchanged. 


The main transportation commodities contributing to inflation 

In both yearly and monthly data, the transport group became the highest contributor to April's inflation (1.45% YoY and 0.11 MoM). The main transportation commodities contributing to the yearly inflation in April-23 were gasoline of 0.91% YoY, airfares of 0.14% YoY, intracity of 0.09% YoY, intercity transport of 0.05% YoY, and cars of 0.04% YoY. On a monthly basis, the main transportation commodities contributing to April's inflation were airfares of 0.06%, intercity transport of 0.03%, and train passengers of 0.01%. 


BI keeps BI7DRRR 

Bank Indonesia (BI) maintained the benchmark rate (BI 7DRRR) unchanged at 5.75% on April-23, keeping a stable stance since Jan-23. BI argues this rate is sufficient to meet its core inflation in the range of 3±1% in 1H23 and bring headline inflation back to the range of 3±1% in 2H23. Besides, BI will continue to strengthen its rupiah stabilization policy to control imported inflation and mitigate the contagion effect of global financial market uncertainty on rupiah exchange rates through the implementation of foreign currency term deposits on Export Earnings (DHE) in accordance with market mechanisms. We agree that inflation has reached its peak and consistently declining towards 4%. Furthermore, we expect the inflation rate of 3.96% YoY this year.