● Headline inflation moderated sharply to 4.33% YoY (Mar: 4.97%), lower than the consensus of 4.39% but remained above Bank Indonesia’s (BI) inflation target band of 2.0% - 4.0% for the eleventh straight month

- MoM: expanded (0.33%; Mar: 0.18%) to a three-month high.

- Core inflation: edged down slightly (2.83% YoY; Mar: 2.94%), lowest since July 2022.

● Moderate inflationary pressure led by easing prices of food, beverage & tobacco followed by transportation and housing, water, electricity & other fuel

- Food, beverage & tobacco (4.58%; Mar: 6.05%): slowed to a 13-month low.

- Transportation (11.96%; Mar: 13.72%): moderated to an eight-month low but remained at a double-digit rate.

- Housing, water, electricity & other fuel (2.53%; Mar: 2.74%): moderated to a 10-month low.

● Inflationary pressure broadly moderated across the region

- VN: CPI moderated in April (2.8%; Mar: 3.4%), an eight-month low, with MoM falling by 0.3% (Mar: 0.2%) as seven out of the 11 groups of main consumer goods and services declined.

- PH: headline inflation moderated in March (7.6%; Feb: 8.6%), a six-month low due to easing prices of food and energy-related subsectors alongside receding supply-side pressures.

● 2023 inflation forecast retained at 4.0% (2022: 4.21%) for now

- We maintain the inflation forecast despite a higher MoM inflation rate in April as we believe the previous cumulative rate tightening by BI combined with a relatively lower commodity prices, and improving supply chain conditions to ease inflationary pressure going forward. This is expected to bring the inflation rate return to BI’s target range of 2.0% - 4.0% by end of 1H23.

- On the monetary policy front, we keep our policy rate outlook unchanged at 5.75% for the rest of the year, expecting inflation to remain steady within BI’s target range until next year. Likewise, the likelihood 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 - 3 May 2023