● In June, consumer prices registered the smallest drop in 3 months (-1.6% YoY; consensus: -3.1%; May: -3.4%)

- MoM (1.6%; May: 0.0%): prices accelerated at the fastest pace in over twelve years

- Core inflation (0.0%; May: 0.0%): muted inflation remained for two straight months suggesting continued weakness in demand condition.

● The ease in deflationary environment was solely led by a softer decline in prices of non-core goods (-5.6%; May: -12.3%)

- Transport & communication (-5.1%; May: -9.2%): the decline in prices narrowed for three consecutive months on a rebound in global crude oil price (USD40.2/barrel; May: USD29.6) amid increasing relaxation of COVID-19 in various countries.

- Housing & furnishing (-1.7%; May: -5.6%): the fall lessened in June, as electricity cost picked up by 23.7%MoM following the ending of the government three-month electricity bills subsidy in May 2020.

● Mixed inflationary picture in the advanced and developing regions

- EA (0.3%; May: 0.1%): price pressures edged slightly higher on smaller deflation in energy prices.

- ID (2.0%; May: 2.2%): inflation growth eased for the fifth straight month, coming in at an over 20-year low and at the lowerend of the Bank Indonesia's 2.0-4.0% target on depressed consumer demand.

● 2020 CPI forecast retained at -1.0 - 0.0% (YTD: -1.1%; 2019: 0.7%)

- The easing deflationary trend in expected to persist in the next few months, as the country further relaxed its lockdown measures by reopening its border to some foreign travellers and entertainment venues on July 1st.

- Given the BoT’s less dovish monetary policy statement and expectation of a gradual improvement in economic activities,we expect the policy rate to be kept at 0.50% for now, preserving the limited policy space.

Source: Kenanga Research - 6 Jul 2020