- Overall, inflation moderated to 3.03% in 2019 (KIBB: 3.1%) versus 3.20% in 2018.

- MoM: the index rose at its fastest pace in six months (0.34%; Nov: 0.14%).

- Core inflation: slowed to a 9-month low (3.0% YoY; Nov: 3.1%).

● The moderation in headline inflation was associated with lower inflationary pressure in food, transportation, communication, and finance index

- Transportation, communication, and finance: further slowed to a 3-year low at 0.2% (Nov: 0.9%).

- Food: decelerated despite in a festive season (4.3%; Nov: 5.0%) on weak consumer demand.

● Mixed inflation trend across advanced economies

- US: Core PCE prices, the Fed's preferred inflation measure, had undershot its 2.0% target (1.6% YoY; Oct: 1.7%).

- Thailand: Inflation rose by 0.87% in December (Nov: 0.21%), making full year reading of 0.71% (2018: 1.0%).

- South Korea: Inflation picked up in December (0.7% YoY; Nov: 0.2%), but full-year reading hit a record low of 0.4% (2018: 1.5%), which may prompt the central bank to further cut its policy rates soon.

● 2020 CPI forecast at 3.4% (consensus: 3.5%) versus 3.03% in 2019

- Higher oil price (current price: USD66.4/barrel vs. 2019 average: USD64.2/barrel) following deeper OPEC output cuts, improved commodities prices, tariff hikes on cigarettes, and recent floods to support higher inflation in 2020.

- Interest rate outlook: We expect BI to embark on at least one rate cut as soon as in 1Q20 to boost growth momentum in 2020. The central bank is leaning towards supporting its weak economic growth while a relatively stable inflation and a firmer Rupiah would provide a stronger case to resume its monetary easing track.

Source: Kenanga Research - 3 Jan 2020