Indonesian headline inflation accelerates slightly in January, likely to stay with BI’s 2020 target band

Indonesia’s headline inflation accelerated mildly in January, remaining within the central bank’s 2-4 percent target band for 2020. On a year-on-year basis, the consumer price inflation accelerated to 2.68 percent from December’s 2.59 percent. The data for January reflects a new base year (2018). Some changes include the addition of ride hailing motorcycle and car taxi tariffs into administered prices basket.

On a month-on-month basis, headline CPI rose 0.39 percent in January. The headline rate was driven by food prices, which rose 1.61 percent. Personal care and other services rose 0.46 percent, while health saw a rise of 0.42 percent. These rises more than countered transport and education prices that fell 0.89 percent and 0.13 percent, respectively.

Core inflation, which excludes volatile food and government-controlled prices, rose 0.18 percent sequentially, bringing the year-on-year rise to 2.88 percent.

“The upshot is that inflation is likely to stay comfortably within the central bank’s 2020 target band of 2.0-4.0 percent. The combination of contained inflation and a sluggish growth outlook suggests it is still too soon to call the end of BI’s easing cycle. We are maintaining our forecast for one more 25bp rate cut this year”, said ANZ in a research report.