● Headline inflation edged up slightly in September (1.60%; Aug: 1.59%),butlower than consensus of 1.69%, and remained below Bank Indonesia’s (BI) inflation target band of 2.0-4.0% for the sixteenth straight month

- MoM: fell marginally (-0.04%; Aug: 0.03%).

- Core inflation: moderated slightly (1.30%; Aug: 1.31%).

● Rising inflationary pressure attributable to higher transportation prices as mobility restrictions gradually lifted, but partially weighed by weak food and beverage tobacco prices

- Transportation (0.74%: Aug: 0.34%): accelerated to a four-month high.

- Food, beverage and tobacco (3.20%; Aug: 3.31%): moderated to a three-month low, as MoM fell sharply by 0.47% (Aug: - 0.32%).

● Inflationary pressure subsides across the region

- VN: CPI moderated to a six-month low in September (2.1%; Aug: 2.8%) due to areduction in education and electricity prices.

- SG: headline inflation eased slightly to 2.4% in August (Jul: 2.5%) largely due to lower private transport prices.

● 2021 CPI forecast retained at 1.9% (2020: 2.04%) amid progress of vaccination program and easingofmovement restrictions

- Domestic COVID-19 conditions continue to improve with new positive cases averaging under two thousand per day, while the death rate is also falling. As a result, the government has eased mobility restrictions, including allowing dine-in at restaurants and opening up of more tourism spots in Java Island. This would likely support the build-up of inflationary pressure in the coming months as the economy gradually reopen.

- With the growth outlook appear to gradually recover towards the end of the year and going into 2022, we expect BI to hold the policy rate steady at 3.50% for the remainder of the year amid heightened global financial instability brought by the US Fed policy shift.

Source: Kenanga Research - 4 Oct 2021