ECONOMIC UPDATE - Inflation rebounds in June on holidays and festive spending

Seasonal factors lift June inflation, further increases expected ahead

According to Statistics Indonesia (BPS), Indonesia recorded a monthly inflation of +0.19% MoM in Jun-25, reversing May’s −0.37% deflation and surpassing both our forecast (+0.08%) and consensus (+0.12%). The primary driver was a sharp rise in the Food, Beverages, and Tobacco sector, which rose +0.46% MoM, contributing +0.13 percentage points to the overall inflation. This increase was largely attributed to seasonal factors, including Eid al-Adha, Islamic New Year, and school holidays, which boosted consumer demand. As a result, volatile food prices surged +0.77% MoM in Jun-25, reversing the deflationary trend observed since April. Administered prices also increased by +0.09% MoM in Jun-25, compared to -0.02% MoM in the previous month, mainly due to higher airfare prices during the school holiday season, despite a reduction in non-subsidized fuel prices as well as toll road and public transportation discounts. Meanwhile, core inflation slightly eased to +0.07% MoM in Jun-25, from +0.08% MoM in May-25, likely reflecting the impact of Rupiah appreciation, which helped contain imported inflation. Looking ahead, we expect the inflationary trend to persist in July, supported by ongoing school holidays, the start of the new academic year, and a hike in non-subsidized fuel prices.

 

Food prices push annual inflation higher than expected

On annual basis, inflation accelerated to +1.87% YoY in Jun-25, up from +1.60% YoY in May-25.  The June figure exceeded both our estimate (+1.77%) and consensus (+1.80%), but remained within Bank Indonesia’s 1.5–3.5% target range. The acceleration was primarily driven by the Food, Beverages, and Tobacco sector, where inflation jumped to +1.99% YoY in Jun-25 from +1.03% YoY in May-25, mirroring stronger demand associated with Eid al-Adha festivities and the school holiday season. This trend is also evident in volatile food inflation, which rebounded to +0.57% YoY in Jun-25 from -1.17% YoY in May-25. In contrast, core inflation edged down slightly to +2.37% YoY in Jun-25 (vs. +2.40% YoY in the previous month), slightly below our projection of +2.38% YoY and the consensus estimate of +2.42% YoY. The moderation in core inflation was still aided by Rupiah appreciation, which helped limit imported inflation pressures. Meanwhile, administered prices also slightly decelerated to +1.34% YoY in Jun-25, from +1.36% YoY in May-25. This was largely due to government stimulus measures, including toll road and public transportation discounts, as well as lower non-subsidized fuel prices. In line with this, inflation in the transportation sector also eased to +0.15% YoY in Jun-25, down from +0.18% YoY in the previous month.

 

YtD inflation edges up in June; pressures expected to build in 2H25

Year-to-date inflation rose to 1.38% in Jun-25, from 1.19% YtD in May-25. Volatile food inflation accelerated to 2.15% YtD, from 1.37% in the prior month. Administered prices and core inflation increased to 1.13% YtD and 1.24% YtD, from 1.04% and 1.18% in May-25. Looking ahead, we anticipate inflationary pressures to build in 2H25. Temporary government subsidies on tolls and transport are set to expire, while non-subsidized fuel prices may rise, especially if geopolitical risks such as a Strait of Hormuz closure materialize. We also expect a modest core inflation uptick, driven by higher gold prices and Rupiah depreciation amid global uncertainty. Meanwhile, volatile food prices may stay elevated, partly due to the free nutritious meal program and climate-related risks. Given these factors, we maintain our 2025 forecasts for both headline and core inflation at 2.5% YoY.