● Indonesia’s headline inflation edged down to a 7-month low of 3.00% YoY, below-market expectation (Consensus: 3.10%; Oct: 3.13%), but well within Bank Indonesia’s (BI) inflation target range of 2.5-4.5%.

- MoM: the index expanded at its fastest pace in four months (0.14%; Oct: 0.02%).

- Ytd: inflation moderated slightly versus the same period last year (3.06%; Jan-Nov: 3.21%).

- Core inflation: slowed to a 6-month low (3.1% YoY; Oct: 3.2%).

● The moderation in headline inflation was associated with lower prices in transportation, communication & finance index

- Transportation, communication and finance: slowed to 0.9% (Oct: 1.5%).

- Food: a slight uptick in line with seasonal pattern (5.0%; Oct: 4.8%) on increased seasonal consumer demand ahead of Christmas and New Year.

● Mixed inflation trend across advanced economies

- US: Core PCE prices continued to undershoot the Fed's 2.0% target (1.6% YoY; Sep: 1.7%).

- Eurozone: Inflation accelerated in November (1.0% YoY; Oct: 0.7%), beating market expectation but remained well below the European Central Bank's 2.0% target.

- South Korea: Inflation turned positive after four months of deflation (0.2% YoY; Sep: 0.0%) on lower base effect due to subdued price pressure and weak domestic growth.

● 2019 CPI forecast maintained at 3.1% (consensus: 3.2%; YTD: 3.1%; 2018: 3.2%)

- Inflation is expected to remain subdued till year-end as stable oil prices (current price: USD61.3/barrel vs. Dec 2018 average: USD57.8/barrel) would be able to contain the inflationary pressure brought about by higher demand during the festive season.

- Interest rate outlook: While the central bank has signalled its policy stance would remain accommodative, we expect BI to undertake further rate cuts as soon as this month to boost growth going into 2020

Source: Kenanga Research - 3 Dec 2019