Indonesia: February 2018 CPI inflation

By Lim Yee Ping, Economist, CIMB Research and Economics and Michelle Chia, Economist, CIMB Research and Economic


HIGHLIGHTS

February 2018 CPI inflation

  • Headline inflation eased slightly in Feb (3.2% yoy vs. 3.3% yoy in Jan) as higher
    volatile food prices were mitigated by a moderation in administered price inflation.
  • Rice imports helped to contain the acceleration in food prices, and the price pass-through from raw food to prepared food inflation were relatively muted.
  • After three rounds of electricity tariff hikes in 1H17, the government plans to keep electricity tariffs unchanged until end-2019.
  • Our inflation and policy rate forecasts for 2018 remain unchanged at 3.7% yoy and 4.25% p.a. respectively.

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Headline inflation eased slightly in Feb
Headline inflation decelerated marginally in Feb (3.2% yoy vs. 3.3% yoy in Jan; CIMB forecast: 3.2%; Bloomberg median consensus: 3.3%). Core inflation, which excludes volatile food and administered price components, also eased in tandem (2.6% yoy in Feb vs. 2.7% yoy in Jan). On a month-on-month basis, consumer price index (CPI) rose 0.2%, a significant slowdown compared to 0.6%/0.7% mom gains in Jan 2018/Dec 2017, thanks to easing food price pressures.

Higher volatile food inflation …
Volatile food inflation accelerated on an annual basis (3.1% yoy in Feb vs. 2.6% yoy in Jan), but mom gains eased to 0.1% (vs. 2.6% mom in Jan 2018) as rice imports in Feb alleviated the upside pressures. The annual price gains in other food components i.e. meat, fresh fish, bean and nuts, as well as eggs, have been on a rising trend since mid2017, and could accelerate further approaching the Lebaran celebration in Jun. Nonetheless, the pass-through of higher raw food prices to prepared food has been relatively muted so far, with prepared food inflation unchanged at 4.1% yoy.

… offset by lower administered price inflation
The administered price inflation in Feb halved from the peak of 10.6% yoy in Jun 2017 (5.3% yoy in Feb vs. 5.8% yoy in Jan) on the back of progressively higher base effects due to three rounds of electricity tariff hikes in 1H17. The government plans to keep electricity tariffs at current levels until end-2019, ensuring that inflation remains manageable to enhance household purchasing power. This would be supported by fixing purchase price of coal for PLN, which the government would unveil in a Presidential Regulation (Perpres) this month.

Higher non-subsidised fuel price amid stronger oil price
Meanwhile, subsidised fuel prices (i.e. Premium gasoline and Solar diesel) are still subject to quarterly review. State-owned oil giant Pertamina has raised prices for nonsubsidised fuel (i.e. Pertalite, Pertamax, and Pertamina Dex) by 1.3-13.6% between Dec 2017 and Feb 2018, amid higher oil prices and the weaker local currency

Stable inflation in other CPI components
Slower core inflation was contributed by a milder increase in clothing price (3.9% yoy in Feb vs. 4.1% yoy in Jan), while healthcare and education, recreation and sports inflation were unchanged at 2.8% and 3.4%, respectively.

Maintain inflation forecast of 3.7% yoy for 2018F
Our average inflation forecast for 2018 remains unchanged at 3.7% yoy (3.8% yoy in 2017), but we note the risks of imported inflation led by a depreciating rupiah. We expect Bank Indonesia (BI) to keep its policy rate unchanged at 4.25% in 2018. The next MPC meeting will be held on 21-22 Mar 2018.

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Originally published by CIMB Research and Economics on 1 March 2018.