Indonesian headline inflation accelerates in March, Bank Indonesia likely to maintain neutral stance in 2018

Indonesian headline inflation accelerated in the month of March. All items saw higher prices over the month, led by expected gains in food and transport costs.

Headline consumer prices rose 0.2 percent on a sequential basis in the month of March, as compared with February’s rise of 0.17 percent. All items in the CPI basket recorded sequential rises in the month, with food price gains of 0.14 percent sequentially in line with expectation. Transport prices rose 0.28 percent reflecting the adjustment in retail prices, which were first raised in the latter half of February.

Core inflation rose to 2.6 percent year-on-year, though it is lower than market projections. Underlying price pressures are expected to remain moderate assuming that domestic demand is not expected to rebound considerably in 2018. According to an ANZ research report, GDP growth is expected to marginally rise to 5.3 percent in 2018 from 5.1 percent last year.

Demand pull inflationary pressures are limited. This would likely keep inflation moderate at 3.5 percent this year.

“We reiterate our view that Bank Indonesia will likely maintain a neutral stance and keep its 7-day reverse repo rate at 4.25 percent through 2018”, added ANZ.

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