● Indonesia’s headline inflation edged upto 1.42% YoY in September (Aug: 1.32%), matchingmarket expectation,butremain below Bank Indonesia’s (BI) inflation target band of 2.0-4.0%

- MoM: growth was unchanged (-0.05%) for the second straight month.

- Core inflation: moderated for the sixth straight month to 1.86% (Aug: 2.03%) signalling subdued demand going forward.

● Higher food prices offset broad-based moderation in other components

- Food, beverage, and tobacco (1.78%: Aug: 0.79%): accelerated to a three-month high.

- Transportation (-0.72%; Aug: -0.13%): down to a three-month low as Jakarta reverted to partial lockdown.

● Subdued inflationary trend across the region

- VN: inflation slowed to a five-month low in September (2.98%; Aug: 3.18%) on weak consumer demand.

- SG: unchanged for the second straight month (Aug: -0.4%), as a moderate decline in the core CPI components offset a steep drop in private transport cost.

● 2020 CPI forecast revised down to 1.9% from the previous 2.3% (2019: 2.82%)

- Year-to-date, inflation moderated to 2.2% (Jan-Aug: 2.3%) in line with the expectation that domestic demand remainsweak following the damaging impact of the COVID-19 pandemic on health and the economy.

- Given the rising fears of COVID-19 resurgence, along with the absence of higher festive spending and weak consumer confidence, we expect inflationary pressure to remain muted for the rest of the year.

- With the inflation rate in September have fallen below BI’s target band for the fourth straight month, we see more room for the central bank to lean towards further monetary easing to bolster growth. However, chances of another rate cut are diminishing given that the rupiah is currently under pressure due to global financial market uncertainty.

Source: Kenanga Research - 2 Oct 2020