● Headline inflation expanded to a five-month high in May (1.68%; Apr: 1.42%), a tad above consensus of 1.67% butremained below Bank Indonesia’s (BI) inflation target band of 2.0%-4.0%.

- MoM: accelerated to a five-month high (0.32%; Apr: 0.13%).

- Core inflation: edged up to a three-month high (1.37%; Apr: 1.18%).

● Attributable mainly to higher prices of food, beverage & tobacco in line with Eid al-Fitr festivities

- Food, beverage, & tobacco (2.33%: Mar: 2.22%): inched up on improved demand as consumer spending typically rise due to the festive season.

- Personal care & other services (3.08%; Apr: 2.60%): expanded as consumer spending rose

- Food and beverage provision/restaurant (2.73%; Apr: 2.35%): accelerated to an 11-month.

● Higher inflationary pressure across the region in line with the economic recovery

- VN: CPI edged up to an eight-month high (2.9%; Apr: 2.7%) mainly due to higher prices of transport services.

- SG: rose to a seven-year high in April (2.1%; Mar: 1.3%), attributable to the base effect.

● 2021 CPI forecast retain at 2.30% (2020: 2.04%), but downside risks remain

- We reiterate our view that inflationary pressure is expected to gradually increase in the 2H21 on the back of a low base effect and a pickup in the economic
activities amid wider vaccine rollout. Nonetheless, we pencil in a cautious outlook as a new variant of COVID-19 emerged that could potentially force the government
to restrict movement.

- While we believe that BI has ample room to resume monetary easing to aid the economic recovery, we reckon that it would likely hold the policy rate steady at
3.50% for the rest of the year in line with price stability outlook and the mandate to support the rupiah. Inflation edged up to a five-month high in May on festive season spending

Source: Kenanga Research - 3 Jun 2021