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CPI & SBI Outlook
CPI & SBI Outlook May 2014
May 30, 2014 14:29

Significant declines in foodstuff prices helped reduce the headline inflation rate in April. On a monthly comparison, Indonesia saw deflation of 0.02 percent, bringing down the YoY inflation rate to 7.25 percent. Year-to-date, inflation reached 1.39 percent.

On a MOM comparison, prices in the foodstuffs and clothing components both fell, although prices in the other components still increased. The foodstuffs component dropped 1.09 percent, and the clothing component was down by 0.25 percent. By comparison, prices in the medical care component rose 0.61 percent, followed by the prepared foods component (+0.45 percent), the housing component (+0.25 percent), the education component (+0.24 percent), and the transportation component (+0.20 percent).

The abundant supply of several main commodities (red chilies, rice, onions) in April helped push down prices. Usually, the harvesting of rice and corn reaches its peak in March-April and ends in May-June. Thus, prices may still decline in May, although not as much as in April. Historically for instance, in May 2013, basic foodstuff prices fell 0.3 percent MoM after a 0.6 percent decline in April.

As such, inflationary pressure is expected to ease further in May 2014. We foresee deflation of 0.01 percent MoM, translating into YoY inflation of 7.14 percent.

In its latest meeting, Bank Indonesia kept its benchmark BI rate unchanged at 7.5 percent, with the Lending Facility and Deposit Facility rates held at 7.50 percent and 5.75 percent, respectively. This decision took into account two main factors: the trend of easing inflation and the aim of reining in the current account deficit. Nonetheless, with the Indonesian economy continuing to slow, we don’t expect rate hikes in the near future. Rather, we expect BI to maintain its benchmark rate at its current level.