Indonesian headline inflation eases further in February, BI likely to hike rate by 25 bps in 2019

Indonesian headline inflation eases further in February, coming in lowest since 2000. The slower rate of rise was mainly driven by food and energy prices.

The consumer price inflation slowed to 2.57 percent year-on-year in February from January’s print of 2.82 percent. This was driven by deceleration in food and energy inflation to 0.72 percent and 1.65 percent, respectively. Other major components mostly saw only minor moves.

Sequentially, headline inflation eased 0.08 percent in the month. A 1.11 percent sequential fall in food prices mainly drove down the headline inflation. A 0.28 percent sequential decline in energy prices after further cuts to non-subsidised oil prices also contributed. Other components saw prices rise in sequential terms, though the rate of rise did ease for housing, clothing and education.

The core inflation rate came in at 3.06 percent year-on-year, core CPI in February remained the same from January and higher than the 2.81 percent average seen in 2018. The pace of rise slowed a bit on a sequential basis to 0.26 percent from 0.30 percent.

Weakening headline inflation and comparative stability in the Indonesian rupiah, along with a less hawkish Fed, diminish possibility of further tightening of monetary policy, noted ANZ in a research report.

“We are reviewing our forecast for a 25bp rate hike in 2019. That said, recent trends in Indonesia’s trade data suggests a rate cut is unlikely anytime soon given BI’s emphasis on external stability”, added ANZ.