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ECONOMIC UPDATE - Inflation cools to 3.52%, its slowest pace since April-22



Inflation heats up during Eid-al-Adha

According to Statistics Indonesia (BPS), monthly inflation rate accelerated to 0.14% MoM in June, which was higher than May inflation rate of 0.09% MoM. However, it came below both our estimate of 0.31% MoM and the consensus estimate of 0.28% MoM. The main contributors to the inflation were food, beverages, and tobacco basket, contributing 0.10% MoM and growing by 0.39% MoM, mostly due to Eid-al-Adha. On the other hand, transportation basket experienced deflation of -0.10% MoM, contributing -0.01% MoM to the inflation rate, primarily due to the decline in gasoline prices such as Pertamax, Pertamax Turbo, Pertadex, and Dexlite. Furthermore, the core inflation rate rose to 0.12% MoM in June from 0.06% MoM in May. Additionally, volatile food prices reported an inflation rate of 0.44% MoM, while administered prices experienced deflation at -0.02% MoM.


Maintain the inflation rate within central bank’s target

On a yearly basis, the inflation rate stood at 3.52% YoY in June, which was slower than the previous month's rate of 4.00% YoY, marking the second consecutive month within the central bank's target inflation range of 2%–4% and hit the slowest pace since April-22. The inflation rate was also lower than our estimate and the consensus of 3.70% YoY and 3.65% YoY, respectively. Furthermore, the basket with the highest growth and the biggest contributor to the inflation rate in June was the transportation basket, where it contributed 1.23% YoY to the inflation rate and rose by 10.18% YoY. On the other hand, the information, communication, and financial services basket recorded a deflation of -0.23% YoY and contributed -0.01% YoY to the inflation rate. Meanwhile, core inflation was reported at 2.58% MoM, which was below our estimate and consensus of 2.61% YoY and 2.64% YoY, respectively.


Inflation rate by expenditure groups

On a yearly basis, most of the expenditure groups increased in June, namely: food, beverages, and tobacco group of 2.85% YoY; clothing and footwear group of 147% YoY; housing, water, electricity, and household fuel group of 2.49% YoY; furnishings, household equipment, and routine household maintenance group of 2.57% YoY; health group of 2.58% YoY; transportation group of 10.18% YoY; recreation, sport, and culture group of 2.17% YoY; education group of 2.75% YoY; food and beverage serving services/restaurant group of 3.27% YoY; and personal care and other services group of 4.27% YoY. On the other hand, the information, communication, and financial services group reported a deflation of -0.23% YoY.


Information and communication equipment support deflation

The information, communication, and financial services group reported a deflation of -0.23% YoY in June. It was reflected by a decrease in the index from 99.82 in June 2022 to 99.59 in June 2023. Moreover, this group contributed -0.01% YoY to the inflation rate. This group consists of three subgroups: information and communication equipment, information and communication services, and financial services. The information and communication equipment subgroup reported a deflation of -1.28 % YoY. On the other hand, the information and communication services subgroup recorded an inflation rate of 0.06 % YoY. Meanwhile, the financial services subgroup stayed the same. 


Anticipate the dry season 

According to the Meteorology, Climatology, and Geophysics Agency (BMKG), Indonesia will reach the peak of the dry season in July–August. In addition, the threat of El Nino and global warming will also exacerbate the dry season. However, we remain confident that the government can manage food inflation through the implementation of the National Movement for Control of Food Inflation (GNPIP). Meanwhile, judging from the faster decline in inflation than our expected, we predict that inflation will be at 3.70% YoY in 2023.