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ECONOMIC UPDATE – Inflation - Harvest Season Had Less Significant Effect


Harvest Season Had Less Significant Effect


April inflation slightly better than expectations

BPS announced April inflation of 0.10% MoM (3.41% YoY), below both Bloomberg consensus and our estimates (see table on the left). Clothing segment lead the inflation figure as it recorded 0.29% MoM inflation. Core inflation was stagnant at 2.69% YoY (0.15% MoM). April inflation figure brought YTD inflation at 1.09%.


Harvest season effect was not as significant as we’ve predicted before

Harvest season could not help much to bring down inflation in April. Although food price experienced deflation of -0.26% MoM (5.15% YoY), it was still the lowest April food deflation in the last 5 years (see exhibit 2). We see that the jump of shallot price offset the effect of harvest season. According to central bank’s food price monitor website (, the average price of shallot significantly increased at 30.2% MoM and BPS noted that shallot gave additional 0.07% to higher headline inflation. We see there was a distributional problem due to huge difference between agriculture Large Wholesale Price Index (0.99% YoY) and food CPI (5.15% YoY). Furthermore, BPS noted that rice, tuber and related products (the most significant weight in food) had deflation -1.79% MoM in March. Rice price was down -1.25% MoM decline in April but its price, especially the medium quality (Rp 11,900), still above government ceiling price (Rp 9,500). Government needs to be more discipline in upcoming months to maintain food price as Indonesia will enter Ramadhan and Lebaran festive.


Non O&G Large Wholesale Price Index slightly increase at 0.12% MoM 

April’s Large Wholesale Price Index (LWPI) for non Oil and Gas increased by 0.11% MoM (2.60% YoY). Mining/quarrying product price became the main driver of growth as it recorded 2.09% MoM (5.81% YoY) in April due to high commodity prices. Imports price still experienced inflation by 0.12% MoM (2.13% YoY) while exports price experienced inflation 0.12% MoM (2.13% YoY). Agriculture products experienced deflation at -0.06% MoM (0.99% YoY) due to harvest season and industry sector also recorded 0.14% MoM inflation.


Maintain our view of 3.5% YoY inflation in 2018

At this juncture, we still maintain our view of 2018 inflation at 3.5% YoY. Government has emphasized its commitment to maintain food price during Ramadhan and Lebaran with pulling out its imported rice stock in May-June. As for central bank stance, there is no need to change the rate if we use inflation point of view. However, central bank may change its stance of rates in 2H18 considering current Rupiah level approaching Rp 14,000/USD. We will discuss more about monetary policy in our monetary review this month.