Late harvesting may curb seasonality effect

April’s MoM deflation slumped to 8-year low with the lowest core level in 3 years

April CPI turned back to the deflation territory, plunging to -0.45% MoM (March: 0.19% MoM), dropping to 3.60% YoY, beating the street expectation but relatively in line compared to our estimates. We note that April MoM was the lowest level since March 2008(base = 2012) while YoY level down to its 4-month low at 3.6%. Overall, April CPI brought YTD figure to book a relatively subdued inflation of 0.96%. Additionally, April core inflation also dropped to its 3-year low at 0.15% MoM (3.41% YoY) due to continued stable IDR against the USD, reducing pressure on imported inflation amid weakened domestic demand.

Lower CPI was stemming from harvesting effect and decelerated transport tariffs

Moreover, dissimilar to prior years in normal weather condition, it is worth noting El Nino has somewhat prolonged dry season and shifted the peak of harvesting period. This year, it is expected that harvesting period would occur in April and May. Thus, a medium rice price has stumbled on higher supplies in the market. Moreover, chilly prices also fell 29% MoM. Other than that, broiler chicken, beef, wheat flour, and imported soybean prices also have trended down. In addition, worth highlighting that during April, administered prices have also remained benign as PLN’s electricity tariff for 12 customer groups was slightly cut by 0.9% MoM while Pertamina also has maintained non-subsidized Pertamax price as well as regular gasoline and subsidized diesel prices.

Non O&G Large Wholesale Price Index also slowed to 0.67% MoM 

Also, due to subdued staple food prices in the farmers’ level, note that April Large Wholesale Price Index (LWPI) for non Oil and Gas also slowed to 0.67% MoM (11.65% YoY). In addition, several LWPI components even contracted including mining and agriculture sector while industry recorded slight increases. On the flip side, wholesale prices for external trade activities continued to surge supported by higher oil prices.  

CPI outlook: Highly possible below 4% YoY during fasting month and Lebaran

With YTD April inflation remained at bay, we reiterate our view that end-2016 CPI should be maintained at 3.9% YoY. Also, although Indonesia to enter cyclical inflation trend coming from the advent of fasting month and Lebaran from May-July, we believe that inflationary pressure to remain calm at below 4% YoY during the period which would be backed by two factors: 1) Continued manageable oil price despite some rebound recently. We do not expect Brent oil price to hover USD60/bbl in the near-term due to flat global demand and relatively sufficient supply. Therefore, we see domestic fuel price should remains, and 2) The government’s plan in reducing fluctuation in staple food prices when entering cyclical period. We believe the government should conduct its best effort to maintain the food supply in the market by doing necessary imports. Besides, a late harvesting period could also somewhat counterbalance the severe impact from higher demand-pull factor.