• Headline inflation moderated to a six-month lowin February (1.38%; Jan: 1.55%), matching consensus and remained below Bank Indonesia’s (BI) inflation target band of 2.0%-4.0% for nine months.
  • MoM: momentum slowed (0.10%; Jan: 0.26%), a four-month low, reflecting the impact of extended partial lockdown measures on economic activities.
     
  • Core inflation: moderated for the eleventh straight month to 1.53% (Jan: 1.56%).
     
• Lower food prices far outweighed higher transportation prices
  • Food, beverage, and tobacco (1.92%: Jan: 2.81%): slowed to a five-month low.
     
  • Transportation (0.41%; Jan: -0.26%): prices rose in tandem with higher oil prices.
     
• Higher inflationary pressure across the region as demand improved
  • VN: CPI rose to a three-month high in February (0.7%; Jan: -1.0%) due to higher demand for food in line with the Lunar New Year festival.
  • SG: headline inflation returned to positive territory in January (0.2%; Dec: 0.0%) due to increased costs of private transportation and accommodation. This is the first uptick in prices since February last year.
     
• 2021 CPI forecast maintain at 2.30% (2020: 2.04%)
  • Inflation is expected to remain subdued and slightly above the lower end of BI target range of 2.0%-4.0% in the 1H21 before it gradually rises in the 2H21. While we believe BI still has room to cut rates to bolster growth, chances for another rate cut are limited given that the central bank has signalled it may use other policy measures, while the rupiah is under pressure on rising US bond yields.

Source: Kenanga Research - 2 Mar 2021