Indonesia’s consumer price inflation accelerates above expectations in November

Indonesian consumer price inflation accelerated in November, surprising on the upside. It came in more than consensus expectations. On a year-on-year basis, Indonesia’s inflation accelerated to 3.58 percent in November from 3.31 percent in October. It was above the consensus forecast of 3.43 percent. On a sequential basis, CPI rose to 0.47 percent from 0.14 percent. Consensus expectations were for a rise to 0.35 percent. Meanwhile, core inflation marginally decelerated to 3.07 percent from 3.08 percent, below the consensus forecast of 3.19 percent.

Today’s print strengthens the view that inflation has troughed in the third quarter and is expected to continue to be on an upward trajectory from now, noted ANZ in a research report. Additional details of the inflation figure are not available. But given that the core inflation has stayed weak, food and energy are expected to have contributed to the acceleration of the headline inflation.

“We expect real GDP growth to increase to 5.4 percent in 2017 from 5.0 percent in 2016, largely due to increased public expenditure focussed on infrastructure spending and firmer commodity prices”, noted ANZ.

Robust growth next year is likely to reduce the requirement for monetary easing, at a time when inflation would also accelerate to 4.6 percent in 2017 from 3.6 percent this year. The increase in liquefied petroleum gas and electricity tariffs is expected to contribute around 0.8 percentage points to the headline inflation.

Thus, the Bank Indonesia is expected to keep the policy rate unchanged for an extended period of time. If the economic growth comes below projections, any easing of monetary policy next year would be conditional, depending on the actual inflation trajectory, stated ANZ.