Indonesia: January 2018 CPI inflation
Originally published by CIMB Research and Economics on 1 February 2018.
- Headline inflation (3.3% yoy in Jan vs. 3.6% yoy in Dec 2017) and core inflation (2.7% yoy vs. 3.0% yoy in Dec 2017) eased by similar magnitude in Jan 2018
- Administered price inflation moderated as the impact of motor vehicle licence fees and electricity tariff hikes that took place in Jan 2017 fell out of annual comparison.
- That was partially offset by rising volatile food inflation, as supply shortage drove up rice prices.
- No change to our inflation forecast of 3.7% for 2018F. We expect Bank Indonesia to keep its policy rate unchanged at 4.25% in 2018F.
Headline inflation eased to 3.3% yoy in Jan
Indonesia’s headline inflation slowed to 3.3% yoy in Jan (3.6% in Dec 2017), in line with Bloomberg median consensus but higher than our forecast of 3.1% yoy. Core inflation (excluding the volatile food and administered price components) also moderated in tandem to 2.7% yoy (3.0% yoy in Dec 2017). On a month-on-month basis, consumer price index (CPI) gained 0.6% (+0.7% mom in Dec 2017).
Lower administered price inflation…
Administered price inflation moderated to +5.8% yoy in Jan (8.7% yoy in Dec 2017), due to high base effects amid higher fees for motor vehicle registration and ownership certificates, cost of licence plates as well as electricity tariffs hikes in Jan 2017. As the impact phases out, transport equipment and support inflation eased significantly to 2.7% yoy (18.5% yoy in Dec 2017), whereas fuel, electricity and water inflation dropped to 11.5% yoy (15.3% yoy in Dec 2017).
… offsets the surge in rice prices
Easing administered price inflation helped to cushion rising volatile food inflation (2.6% yoy vs. 0.7% yoy in Dec 2017), keeping overall inflation in check. The most notable increase was recorded in cereal, cassava & related products, which gained 9.2% yoy (3.7% yoy in Dec 2017). This was led by rally in rice prices beyond price ceilings set by the government amid supply shortage in the country. With harvesting season scheduled to start only in Mar, the government resorted to importing 346,000 tonnes of rice in the interim (until 28 Feb) to stabilise prices.
Stable inflation for other food components
Other food components that recorded higher price gains include meat products (3.8% yoy in Jan 2018 vs. 2.8% yoy in Dec 2017), vegetables (3.9% yoy vs. 2.9% yoy in Dec 2017) and beans and nuts (2.2% yoy vs. 1.6% yoy in Dec 2017), whereas inflation eased for fresh fish (5.5% yoy vs. 6.0% yoy in Dec 2017), preserved fish (6.9% yoy vs. 7.7% yoy in Dec 2017), eggs, milk and related products (4.6% yoy vs. 4.8% yoy in Dec 2017), fruits (2.6% yoy vs. 2.9% yoy in Dec 2017), and fats and oils (2.1% yoy vs. 2.9% yoy in Dec 2017).
Maintain inflation forecast at 3.7% yoy for 2018F
We maintain our inflation projection at 3.7% yoy for 2018F (3.8% yoy in 2017). As we expect the inflation rate to remain relatively stable, and within Bank Indonesia’s (BI) target range of 2.5-4.5%, we expect BI to keep its policy rate unchanged at 4.25% throughout 2018F.