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ECONOMIC UPDATE – Inflation - Late harvest pushed annual inflation higher


Late harvest pushed annual inflation higher


March inflation slightly below our estimate

BPS reported that March inflation was at 0.20% MoM (3.40% YoY), which came above Bloomberg consensus but slightly below our estimates (see table on the left). All sector experienced inflation in March, including food sector which usually had a deflation in March. Core inflation started to slightly pick up in annual basis to 2.67% YoY (0.18% MoM), in line with Indonesia’s March manufacturing PMI that remained in expansion territory of 50.7 point. March inflation figure brought YTD inflation at 0.99%.


Late harvest brought food price still experienced inflation

Chief Economic Minister, Darmin Nasution, statement previously about late harvest in this year already indicated that food price will not experience deflation in March like previous year. The condition was similar with March 2016 condition where late harvest brought food inflation to 0.69% MoM and monthly inflation at 0.19% MoM. In current condition, food inflation (0.14% MoM, 4.24% YoY) was driven by chili, onion and garlic. According to central bank’s food price monitor website (, the average price of red chili increased by 7.2% MoM to Rp43,350/kg while the price of cayenne chili increased by 10% MoM to Rp 47,050/kg the average price of garlic reached Rp 33.100/kg or grew 17.4% MoM while red onion price increased 8.9% MoM to Rp 28,000/kg. Rice price deflation(-1.2% MoM Rp 11,950/kg) helped to cool down March inflation. We expect that food price will have downtrend in April as the peak of harvest season will be occurred in this month and bring annual inflation to lower level.


Non-subsidized fuel increase effect still limited

As global oil price keep its uptrend, Pertamina increased its non-subsidized fuel again at end of March. This time, Pertalite (Ron 90) had its turn as Pertamina increased its price to Rp 7,800/litre (2.6%), making its price has increased by 4.0% from its position in the end of 2017 (Rp 7,500/litre). Previously, Pertamina had increased Pertamax price by 3.5% to Rp8,900/liter in February. However, we see that the effect of those prices increase to inflation was still relatively small as BPS only stated that fuel price increase gave 0.04% additional inflation in March, below our estimation at 0.06%. We still see that government is committed to maintain subsidized fuel price at current level which prevent inflation to increase wildly in 2018.


Non O&G Large Wholesale Price Index slightly increase at 0.49% MoM 

March’s Large Wholesale Price Index (LWPI) for non Oil and Gas increased by 0.49% MoM. Both Mining/quarrying product price and export product price became the main driver of growth as it recorded 0.92% MoM and 1.43% MoM inflation in March respectivly. We see that higher oil and coal price in 2018 became the main driver of the price increase in 1Q18. Import price also increased by 0.52% MoM which in our view correlated with Rupiah depreciation. Agriculture products experienced inflation at 0.44% due to late harvest season and industry sector also recorded 0.14% MoM inflation.


Maintain our view of 3.5% YoY inflation in 2018

We see that harvest season in April may bring down consumer price to deflation territory (in monthly basis), especially for food price. Annual inflation is expected to move at 2.9% - 3.2% YoY in April and it is still expected to be below 3.5% YoY in 1H18. Government commitment to maintain subsidized fuel and electricity price made us still believe Indonesia’s inflation in 2018 may reach 3.5% YoY. There is no need for central bank to change its policy stance this month.