● Headline inflation slowedfor the fifthstraightmonth, sliding further to 1.54% YoY in July (consensus: 1.66%; Jun: 1.96%), its lowest since June 2000 and well below the Bank Indonesia's (BI) inflation target band of 2.0-4.0%

− MoM: fell marginally by 0.10% (Jun: 0.18%), reflecting a sluggish consumption despite easing lockdown measures.

− Core inflation: eased to 2.07% YoY (Jun: 2.26%), a record low, signalling weak underlying pressure ahead.

● Subdued consumer demand weighed by COVID-19 pandemic

− Food, beverage, and tobacco (1.73% YoY: Jun: 3.03%): moderated sharply for the fifthstraight month as consumer spending continue to weaken.

− Transportation (-0.71% YoY; Jun: -0.95%): fell for the sixth straight month but lesser than the previous month.

● Mixed inflationary trend across the region

− VN: rose 3.39% in July (Jun: 3.17%) on the back of higher prices of petrol, gas, electricity, and water.

− SG: eased to -0.5% in June (May: -0.8%), its third straight month of deflation on falling transport prices.

● 2020 CPI forecast maintained at 2.3% (2019: 2.72%) amid weak near term outlook

− Year-to-date, inflation grew 2.43% on the impact brought by the pandemic. Inflation is expected to remain weak in the near term given the absence of higher festive spending and lingering COVID-19 jitters along with the lower fuel prices.

− Along with BI’s recent dovish stance and to do whatever within its capacity to support the economy, the low inflationary environment would provide further support forBI to embark on further monetary easing, possibly slashing another 25 basis points of its benchmark interest rates at its next MPC meeting this month.

Source: Kenanga Research - 4 Aug 2020