● Headline inflation moderated to 4.00% YoY (Apr: 4.33%), lower than the consensus of 4.23% and within Bank Indonesia’s (BI) inflation target band of 2.0% - 4.0% for the first time since May 2022

- MoM: increased marginally (0.09%; Apr: 0.33%) but at its slowest pace in the past seven months.

- Core inflation: edged down (2.66% YoY; Apr: 2.83%), lowest since June 2022.

● A broad-based moderation led by slower rise in food, beverage & tobacco and transportation

- Food, beverage & tobacco (4.27%; Apr: 4.58%): slowed to a 14-month low.

- Transportation (10.62%; Apr: 11.96%): moderated to a nine-month low but remained at a double-digit rate.

- Housing, water, electricity & other fuel (2.48%; Apr: 2.53%): moderated to an 11-month low.

● Inflationary pressure broadly moderated across the region

- VN: CPI moderated in May (2.4%; Apr: 3.4%), a 15-month low largely on lower fuel prices.

- PH: inflation slowed in April (6.6%; Mar: 7.6%), an eight-month low due to the cumulative impact of interest rate hikes since last year.

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

- We are keeping the inflation forecast unchanged for now although the year-to-date inflation remained elevated at 4.81%. This is because we expect inflationary pressure to weaken towards the end of the year as we believe BI's cumulative rate tightening, combined with relatively lower commodity prices and improving supply chain conditions will ease inflationary pressure going forward.

- Meanwhile, we maintain our monetary policy rate outlook whereby the policy rate is expected to remain unchanged at 5.75% for the rest of the year, largely on the anticipation that inflation will continue to moderate and remain within BI’s target range of 2.0% - 4.0% until next year. Nevertheless, the likelihood for BI to adjust the policy rate in the future would depend on the stability of the rupiah, as the local note remains susceptible to global financial uncertainty.

Source: Kenanga Research - 6 Jun 2023