● Headline inflation moderated to 4.97% YoY (Feb: 5.47%), lower than Bloomberg’s consensus of 5.12% but remained above Bank Indonesia’s (BI) inflation target band of 2.0% - 4.0% for the tenth straight month

- MoM: expanded slightly (0.18%; Feb: 0.16%) and remained on a positive expansion for the fifth straight month.

- Core inflation: edged down (2.94% YoY; Feb: 3.09%), lowest since July 2022.

● Moderate inflationary pressure due to slower prices of food, beverage & tobacco as well as housing, water, electricity & other fuel, but partially capped by higher transportation cost

- Food, beverage & tobacco (6.05%; Feb: 7.23%): slowed to a two-month low.

- Housing, water, electricity & other fuel (2.74%; Feb: 3.43%): moderated to an eight-month low.

- Transportation (13.72%; Feb: 13.59%): bucking the trend, it expanded to a two-month high, partly due to an increase in public transportation costs ahead of the Eid Al-Fitr exodus in April.

● Inflationary pressure broadly moderated across the region

- VN: CPI moderated to a seven-month low in March (3.4%; Feb: 4.3%), with MoM falling by 0.2% (Feb: 0.5%), reflecting weak demand and partly due to lower prices of gasoline and food and food services.

- SG: headline inflation moderated to 6.3% in February (Jan: 6.6%), with core inflation, the central bank’s favoured price measure, remained unchanged at 5.5% (Jan: 5.5%), reflecting a robust demand.

● 2023 inflation forecast maintained at 4.0% (2022: 4.21%) on expected slowing demand

- We keep the inflation forecast unchanged as we believe the cumulative rate tightening by BI and subdued commodity prices amid weak demand are expected to ease inflationary pressure going forward. This is expected to bring the inflation rate to BI’s target range of 2.0% - 4.0% by 2H23. However, there is an upside risk to inflation on the back of seasonal spending due to the Ramadan and Eid Al-Fitr festive periods.

- Barring an unforeseen external shock to the rupiah and risk to inflation as well as the growth outlook, we keep our monetary policy rate outlook unchanged at 5.75% for the rest of the year. Nevertheless, the chances for BI to adjust the policy rate in the future would depend on the stability of the rupiah and the inflation outlook.

Source: Kenanga Research - 4 Apr 2023