• Headline inflation eased slightly to 3.00% YoY (Mar: 3.05%), a tad below the consensus of 3.06% and within Bank Indonesia’s (BI) target band of 1.5% - 3.5%
  
  − MoM (0.25%; Mar: 0.52%): moderated to a three-month low but remained above the 2023 average (0.23% MoM).
  
  − Core inflation (1.82% YoY; Mar: 1.77%): increased to a five-month high.

• Price pressure was broadly stable mainly due to food prices and transportation index grew at a slower pace
  
  − Food, beverage & tobacco (7.04%; Mar: 7.28%): moderated slightly, but remained elevated, surpassing the 2023 average (4.88%), partly due to the impact of El-Nino and festive season demand.
  
  − Transportation (1.33%; Mar: 1.82%): slowed to a three-month low as non-subsidized fuel prices remained unchanged since January despite higher global crude oil prices.

• Mixed inflationary pressure across the region
  
  − VN: headline inflation expanded in April (4.4%; Mar: 4.0%) to a 15-month high, led by rising costs of food, transport, housing and healthcare services.
  
  − TH: inflation fell in March (-0.5%; Feb: -0.8%), marking six straight months of negative inflation.

• 2024 average inflation forecast retained at 3.2% (2023: 3.7)
  
  − Year-to-date, headline inflation grew 2.85% amid the high base effect recorded last year, especially in the early part of 2023. Price pressure is expected to pick up pace in the near term as the high base effect dissipates while further influenced by the impact of the El Nino weather pattern and escalating geopolitical tensions.
  
  − Given the surprise hike by BI in the recent Board of Governors Meeting, we view that there is still room for another rate hike should the rupiah continue to weaken amid the strong US Dollar. This is largely because BI's primary mandate is to ensure the stability of the rupiah. Nevertheless, we believe another rate hike is unnecessary given that the current policy rate which already at its highest since 2016 could weigh on domestic demand while the inflation outlook is likely to stabilise. With that said, we expect BI to hold rates steady for the rest of the year.

Source: Kenanga Research - 3 May 2024