● Headline inflation moderated to 4.69% in August (Jul: 4.94%) and below the consensus of 4.90%. Nevertheless, the inflation reading is still above Bank Indonesia’s (BI) inflation target band of 2.0% - 4.0%

- MoM: fell slightly (-0.21%; Jul: 0.64%) for the first time in six months.

- Core inflation: accelerated (3.04% YoY; Jul: 2.86%), highest since November 2019.

● Inflationary pressure remained relatively high amid an increase in prices of food, beverages and tobacco, as well as transportation

- Food, beverage & tobacco (7.73%; Jul: 9.35%): price increase at a slower pace than the preceding month.

- Transportation (6.62%; Jul: 6.65%): slightly eased but remained elevated amid higher fuel prices.

● Higher inflationary pressure across the region

- VN: CPI moderated in August (2.9%; Jul: 3.1%), as an increase in the price of nine groups of main consumer goods was partially capped by a price drop in educational and telecommunication services.

- SG: headline inflation accelerated further in July (7.0%; Jun: 6.7%), driven by higher prices for food, electricity, and gas. Meanwhile, core inflation, the central bank’s favoured price measure, rose to 4.8% (Jun: 4.4%).

● 2022 inflation forecast retained at 4.1% (2021: 1.56%) with prices to remain elevated in 2H22

- Headline inflation is expected to accelerate further in 2H22, potentially hitting the 5.0% level due to rising food prices and the increase in fuel subsidised prices. Nevertheless, downside risks persist amid the global economic slowdown brought by the acceleration in the global monetary policy tightening cycle.

- On the monetary front, we expect Bank Indonesia (BI) to raise its policy rate further by 25 bps each in October and December meetings. The decision is expected to partly tame rising inflation amid an improvement in the domestic economic outlook

Source: Kenanga Research - 2 Sept 2022