● Headline inflation expandedto 1.59% YoY in November, beating market expectation(consensus: 1.53%; Oct: 1.44%)but remain below Bank Indonesia’s (BI) inflation target band of 2.0-4.0%

− MoM: accelerated (0.28%; Oct: 0.07%), a nine month high or matching the growth rate in February.

− Core inflation: moderated for the eighth straight month to 1.67% (Oct: 1.74%)

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

− Food, beverage, and tobacco (2.87%: Oct: 2.25%): rose to a five-month high.

− Housing, water, electricity & other fuel (0.41%; Oct: 0.56%): moderated for the second straight month.

− Transportation (-0.47%; Oct: -0.79%): deflation rate eased.

● Muted inflationary pressures across the region

− VN: inflation slowed to an almost five-year low in November (1.48%; Oct: 2.47%) due to a decline in fuel, travel and transportation costs.

− SG: inflation dipped in October (-0.2%; Sep: 0.0%) on the back of weak transport costs, and lower accommodation prices.

● 2020 CPI forecast revised slightly up to 2.0% from previous 1.9% (2019: 2.82%)

− The higher than expected inflation in November would push up the overall inflation for 2020. In addition, we project inflation to expand to 2.3% in 2021 on the back of growth recovery as well as the gradual reopening of economic activities.

− On the monetary front, we maintain a 50.0% probability of 25 bps rate cut in December. We believe that BI has ample space to lean on further monetary easing to boost its domestic economy. Besides, the stable rupiah following the US election result and vaccine optimism may provide further support for BI to slash rate in the near term.

Source: Kenanga Research - 2 Dec 2020