• Headline inflation moderated to 1.55% YoY in January, lower than market expectation (consensus: 1.66%; Dec: 1.68%), and remained below Bank Indonesia’s (BI) inflation target band of 2.0%-4.0%
  • MoM: moderated (0.26%; Dec: 0.45%), a two-month low, reflecting the impact of surging COVID-19 cases and the reimposition of large-scale social restrictions on the economy.
  • Core inflation: moderated for the tenth straight month to 1.56% (Dec: 1.60%).
• Lower food prices and housing, water, electricity, and other fuel outweighed improvement in transportation prices
  • Food, beverage, and tobacco (2.81%: Dec: 3.63%): moderated to a two-month low.
  • Housing, water, electricity & other fuel (0.25%; Dec: 0.35%): slowed for the fourth straight month.
  • Transportation (-0.26%; Dec: -0.85%): contraction eased in tandem with higher oil prices.
• Subdued inflationary pressures across the region
  • VN: CPI turned deflation in January and lowest since May 2001 (-1.0%; Dec: 0.2%) on high base effect.
  • SG: headline inflation flat in December (0.0%; Nov: -0.1%) with overall inflation came in at -0.2% in 2020 (2019: 0.6%).
• 2021 CPI forecast maintain at 2.30% (2020: 2.04%) amid rising downside risk
  • Inflation is expected to remain at the lower end of the BI target range of 2.0%-4.0% in the 1H21 before it gradually picks up in the 2H21. This is in line with the BI Governor’s expectation that early signs of inflationary pressure likely to start in the 4Q21.
  • Nonetheless, the impact of surging COVID-19 cases and the recent curbing measures in several localities are expected to weigh on near-term growth recovery. Given the low inflation outlook and relatively stable rupiah, there is a high probability that BI may embark on a 25 bps rate cut at the next Board of Governor meeting on 18 February.

Source: Kenanga Research - 2 Feb 2021