Indonesia’s headline CPI edges down marginally in June; scope for lower policy rate, says ANZ Research

Indonesia’s headline CPI edged down marginally in June to 3.28 percent y/y. Although core and volatile food inflation rose, this was offset by lower administered price inflation. The big picture is that inflation remains under control and comfortably within the central bank’s 2.5-4.5 percent target band, ANZ Research reported.

Most major categories recorded a pick-up in annual inflation, with healthcare and transport as the main exceptions. The slowdown in transport inflation, to 1.91 percent y/y in June from 3.58 percent y/y in May, was the main driver behind the pullback in headline inflation.

In sequential terms, headline CPI rose by 0.55 percent m/m in June, easing from the 0.68 percent increase in the prior month. The pace of increase in clothing and housing prices picked up, but these were offset by a fall in transport prices and a slower pace of increase in food prices.

Core CPI, which excludes volatile food and government-controlled prices, rose by 0.37 percent m/m in June, up from 0.27 percent in May. In y/y terms, core inflation rose to a 26-month high of 3.25 percent, but even then, it remains contained by historical standards.

"We continue to see scope for the policy rate to be lowered by 75bps over the next one year, with the first potentially materialising in July provided that IDR stability is maintained," ANZ Research commented in the report.