● Headline inflation slowedforthesixthstraightmonth,slidingfurtherto 1.32% YoY inAugust(consensus:1.40%;Jul:1.54%),its lowest since June 2000 and well below Bank Indonesia's (BI) inflation target band of 2.0-4.0%

- MoM: fell marginally by 0.05% (Jul: -0.1%) as the COVID-19 pandemic continued to hit demand.

- Core inflation: moderated for the fifth straight month to 2.03% (Jul: 2.07%), a new record low.

● Weak inflationary pressure primarily attributed to sluggish food, beverage and tobacco, reflecting subdued consumer demand

- Food, beverage, and tobacco (0.79% YoY: Jul: 1.73%): moderated sharply for the fifth straight month.

- Housing, water, electricity and other fuel (0.64% YoY; Jul: 0.93%): edged down for the third straight month.

- Education (1.61% YoY; Jul: 2.66%): moderated sharply due to prolonged school shutdown.

● Subdued inflationary trend across the region

- VN: grew 3.18% in August (Jul: 3.39%) on rising food and energy cost, albeit at a slower pace than the preceding month.

- SG: fell by 0.4% in July (Jun: -0.5%), its fourth straight month of deflation despite most businesses were allowed to resume activities from 19 June.

● 2020 CPI forecast maintained at 2.3% (2019: 2.72%) but with a high probability to be revised down in the near term

- Year-to-date, inflation grew 2.3% (Jan-Jul: 2.43%), matching our forecast and is expected toremainsubduedin theremaining part of the year given the absence of higher festive spending, income instability, and weak consumer and business confidence brought by the impact of COVID-19. Nonetheless, following BI’s aggressive 100 basis points rate cut this year along with the large fiscal stimulus, demand is expected to gradually improve towards the year-end.

- On the policy rate outlook, we see ample room for BI to resume rate cut at the next monetary policy meeting slated on 17 September. However, the probability of doing so is less given the optimistic outlook by BI on growth recovery and the need to maintain the rupiah's stability amid debt monetisation concerns.

Source: Kenanga Research - 2 Sept 2020