● Indonesia’s headline inflation edged upto 1.44% YoY in October (consensus: 1.45%; Sep: 1.42%), butremainbelow Bank Indonesia’s (BI) inflation target band of 2.0-4.0%

- MoM: bounced back into positive territory after three straight months of decline (0.07%; Sep: -0.05%).

- Core inflation: moderated for the seventh straight month to 1.74% (Sep: 1.86%).

● Higher food prices partially offset a slowdown in housing, water, electricity & other fuel, and transportation

- Food, beverage, and tobacco (2.25%: Sep: 1.78%): rose to a four-month high.

- Housing, water, electricity & other fuel (0.56%; Sep: 0.66%): moderated marginally.

- Transportation (-0.79%; Sep: -0.72%): eased to a four-month low.

● Mixed inflationary trend across the region

- VN: inflation slowed to a five-month low in October (2.47%; Sep: 2.98%) due to a decline in restaurant and catering services, and transportation prices.

- SG: inflation turned to zero in September (Aug: -0.4%), which mark an end of a five consecutive month of deflation, mainly due to the lesser decline in private transport costs.

● 2020 CPI forecast retained at 1.9% (2019: 2.82%)

- Year-to-date, headline inflation moderated to 2.11% with signs to remain subdued in the remaining months of 2020. The current surging COVID-19 cases are expected to weigh on domestic demand but would be partially supportedby the ongoing government’s fiscal stimulus and monetary easing embarked by Bank Indonesia (BI).

- Nevertheless, we believe that BI has ample space to slash its policy rates further in a bid to bolster the sagging economy. However, we maintain our outlook that the central bank to hold rates steady for the rest of the year given the need to maintain rupiah’s stability amid global financial market uncertainty.

Source: Kenanga Research - 3 Nov 2020