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CPI & SBI Outlook
CPI & SBI Outlook September 2014
September 29, 2014 10:54

Inflationary pressures eased in August. The MoM inflation rate reached 0.47 percent, or lower than July’s 0.93 percent. Compared to August last year, inflation reached 3.99 percent. This is lower than July’s YoY inflation rate of 4.53 percent. Cumulatively, in the first 8 months of the year, headline inflation reached 3.42 percent, or far lower than the 7.49 percent recorded in the corresponding period of last year.

Price increases in most CPI components moderated compared to last month. The education component rose the most (+1.58 percent MoM), followed by the housing component (+0.73 percent), the prepared foods components (+0.52 percent), the foodstuffs component (+0.36 percent), the medical care component (+0.33 percent), and the clothing component (+0.23 percent). By contrast, prices in the transportation component fell 0.12 percent. Further increases in educational costs reflected the start of the new academic year which began in the July- September period. Inflationary pressures in other components of the CPI normalized following Ramadan and the Idul Fitri holidays.

For September, we don’t expect prices in the foodstuffs and prepared food components to show significant increases. Furthermore, prices in the education component will also tend to normalize as the new academic year is already underway. Against this backdrop, we predict inflation of 0.40 percent MoM, translating into YoY inflation of 4.66 percent.

Bank Indonesia held its benchmark policy rate at 7.5 percent, with the Lending Facility and Deposit Facility rates also kept unchanged at 7.50 percent and 5.75 percent, respectively. The outlook for inflation and the current account deficit will remain the major factors influencing central bank policy in the near term. Hence, we predict that the BI rate will stay at its current level going forward.